Payroll Financing for Government Contractors

One of the biggest financial barriers to success as a federal contractor is how to make payroll while you’re waiting for the government to pay you. If that’s true in your case, you might be looking for financing to pay your employees. One option to consider is something like Sterling National Bank’s Payroll Finance program, where you turn over both the collection AND the payroll processing to them in a 2-for-1 process:

On the financing side, they can:

  • Finance up to 100% of payroll cost (100% is unusual, but in this case it’s payroll only),
  • Invoice the client or the government – Federal, state, and/or local,
  • Help collect payment, and
  • Provide all the internal and reporting controls so management can concentrate on building the business.

On the payroll side, they can:

  • Collect payroll data from employees remotely or through the company,
  • Calculate the payroll,
  • Pay by means of ACH, pay card, and/or check, and
  • File and pay the necessary taxes, deductions, information and forms.

A solution like this means that in addition to the available cash flow support for payroll, you can concentrate on operations and obtaining more and larger contracts, while you let somebody else manage your invoicing and payroll tasks.

For more details about this program, check out There are also many different programs to explore, such as the ones in this post and this post. The key is to find an innovative one that fits your needs. The less financed your business is, the better, obviously, so payroll financing might be just the ticket to limiting exposure and interest/fee cost. Alternatively, the factoring folks provide more funding, but at a much higher cost, obviously because their risk/exposure is higher.

When you are the prime contractor, often your subs will ask for a “lock-box” type of banking approach that pays them immediately without the actual cash going through your coffers. Understand that your sub is just minimizing their risks. A strong and positive working relationship is more important than fighting over this. Agree to the request, set up the system, and then let it go. You need them to be on your side in so many other ways, this is just not worth fighting over.

And finally, don’t despair over the size of your interest and fees. Everyone starts out this way, and as soon as you can grow into qualifying for a regular bank line of credit, your financing costs will drop and you will have some great stories to tell about how you grew out of that phase.

2 Comments on “Payroll Financing for Government Contractors”

  1. Rosemary says:

    Ahh, but you have to watch out for the interest charged and be sure the oldest bills are paid first! As you know, the interest rate keeps going up the older the invoice; so you have to watch it carefully.