How can an SME with insufficient cash finish a project it has been awarded?
A contract financing loan is helpful in such a scenario. It means exactly what the name suggests, plugging the gap in the scenario where a contract is secured, but the business lacks the funds needed to actually embark on and complete the project. Financial institutions assessing such financing requests will take into consideration the past track record of the company in delivering contracts of similar size as it indicates the ability of the company to fulfill the new contract and provides assurance that proceeds based on the terms of the contract, will be received to pay off the loan.
This is good news for young companies to get much needed liquidity. Let’s say a company wins a government contract to construct a new highway with no or only some progressive payments expected until the contract is completed. Financial institutions that offer contract financing can give the customer an advance on such a contract so that they can pay for the manpower costs, supplies and other overheads needed to fulfill the contract.
That's true. Sometimes if collateral is needed, then it's a problem for the SME. There are companies out there that can do Contract Financing without hard collateral. Also, if a project has started, invoices can become a good source of getting financing against those.