Tuesday, May 19, 2015

The Importance Of Government Contract Financing

By Tammie Caldwell

The government comes up with different development proposals that are meant to promote the welfare of citizens as well as enable service delivery. At times numerous projects are taken at once and this makes regular assessment of these projects very difficult. The amounts incurred would also be very high since there are no enough resources to see the projects taken. Thus government contract financing is important in ensuring the projects takes places as planned.

It has been found out that most infrastructural constructions require huge sums of money that most contractors may not have. Taking such bids will mean that the companies are likely to face financial crisis leading to crippling of operations. Smaller companies are more likely to suffer as compared to larger companies that have more sources of funds.

There are many institutions that offer credits to the contracting companies. The companies who require funding need to approach these institutions and make their intentions clear. They are mostly run by the federal and deal in lending of huge sums of money. They also deal in lending of smaller funds so that they can cater for smaller borrowers as well.

In order to start the borrowing procedure, the borrower need to meet all conditions set aside by the authorities in the institutions. There should be presentation of required documents that are used as a basis of evaluating how much the borrower can be awarded. This process is quite lengthy and this delays the time on which funds will be released. The borrower is required to have documented his proposal well in such a way that it can convince the lenders.

Provision of these loans requires the companies to prove doubt that are in a position to make full repayments when time is due. An assessment of contractors is done by these institutions by evaluating the cash flows that have been presented. This helps to find out how much would be secure to lend out as opposed to what a borrower proposes to get.

The amounts come with some conditions that the borrower must meet while making the payments. A small interest is charged by the institution and is paid together with the other amount. Despite it being quite costly to borrow, considerable benefits have been realized since allocation of funds by the government is usually a lengthy task. This makes projects to be done within a short period.

The amount agreed is deposited in the accounts of a contractor within a few days. This ensures that the project implementation starts as planned and the deadline for completion it is met. The funds also enable the contractor to purchase all machines, raw materials and any other things that are needed in performing their duties. This amount is also used to pay for any costs incurred and wages to all workers. This has been very useful in promoting development in the countries where such projects are undertaken.

More agencies should be established and existing ones expanded so that more financiers can be available. The procedures should be shortened so that the time taken is reduced making performance very efficient. This will bring about more developments within a short time.

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