Contract Loan Program: Loan Requirements

A contract loan provides financing for a business that will fill a government contract. These loans take place on a local and national level. Aside from helping you finance your venture, these loans offer the benefits of low interest rates and flexible payment options. Since they are special purpose loans, though, they do come with a number of requirements. 

Qualify as a Small Business

The first qualification to secure any SBA loan is to qualify as a small business. You will need to meet the criteria set out by the administration, which gaps revenue at $5M and employees at 500. These numbers are not set in stone, and some requirements may depend on the industry you are in. However, if your business is too large, you will have to seek another way to secure your loan. The SBA makes these loan requirements in order to fulfill its designated purpose of assisting small business owners.

Must have Bank and Business Plan

Contract loans do not come directly through the SBA. Rather, they are guaranteed by the SBA. This means the loan will actually originate in another lender. In order to qualify, you must have a bank willing to fund your loan. This will only happen if you have a reasonable business plan proving your endeavor will be profitable. Your business plan will be evaluated first by your private lender and additionally by the SBA. A solid business plan discusses your product, management organization, marketing and financials for the company.

Must have an Assignable Contract

A contract loan is a business expansion loan aimed at securing a specific government contract. You will not qualify unless you have an assignable contract, meaning the government has agreed to use you as a vendor. You will typically need to gain a of short term loan in order to provide the materials to present to the government organization selecting you as a vendor. Short term loans can be used to build a model, beta test software and cover other upfront costs. Then, you will need to rely on the contract loan in order to fund the development of your actual project for the government.

Prove to be Creditworthy

Even if you meet all the other criteria for this loan, you may still be rejected if you are not creditworthy. You should have a good credit score. While you do not need to have flawless credit, a solid credit history will be required. Your business should be in good financial standing. If you or your business owes any money in taxes, you will not be able to secure the loan. If you have defaulted on previous government loans or government guaranteed loans, you will not be eligible for a second opportunity.