Defense Contractor Loans: Financing for DoD Contractors

The global industry responsible for the sales and manufacturing of weapons and military technology is widely known as the defense industry. It consists of a commercial sector accountable for research and development, engineering, production, and the servicing of military equipment and facilities. The materials are then distributed by arms-producing companies, referred to as arms dealers or defense contractors. Individual departments of government also operate in the arms forces, buying and selling weapons, and other military items. These items are then usually stored in an arsenal, a place where you can find arms and ammunition being made, maintained and repaired, stored, or issued in any combination. Moreover, as with most industries, there are methods used that are keeping it stable and thriving but also factors that may cause shifts or declines. Such as how military budgets continue to tighten in the traditional big markets and emerging nations are making an effort to protect themselves. Thus, defense contractors, traditionally based in the United States or Western Europe, have begun looking into new places for customers. Therefore, the shift requires milestone changes in the way defense companies approach new business and conduct their customer relations.

Quick-jump to the following sections:

• Conventional Defense Contractor Lending
• DoD Contractor Accounts Receivable Financing
• Defense Contracting Factoring
• Defense Contractor SBA Financing
• Defense Contractor Equipment Financing
• Defense Contractor Bridge Financing

Perhaps the most notable challenge is how defense contractors increasingly have to negotiate on a country-by-country basis. Before, the U.S. and its great allies had most of the control over who buys weapons and how much equipment they can cache. Now, individual nations are making these decisions for themselves as they are becoming more informed and comfortable with navigating their defenses. Each country has its unique histories, politics, alliances, and economic goals, and are using their experiences and everyday reality to imprint their own contract negotiations. Hence to continue thriving in this environment, contractors must no longer rely on the standard framework that was put before, in which a U.S.—based defense establishment, for instance, does trade with a foreign country only as an exporter of goods. Instead, defense contractors will be building tighter relationships with more countries.

These activities will include assessing each market separately, deciding which are appropriate to do business with, and creating programs tailored to each country for business growth, technical assistance by local businesses, and lasting investment. In particular, doing so will be most crucial for U.S. contractors whom to some extent are crippled by the strong dollar. Since U.S. products are becoming more expensive than comparable equipment created in non-dollar denominated countries, and as a result, the U.S. will have to in a way, sell cooperation and collaboration as a valuable asset that will make it worthwhile and economical for foreign customers to access U.S. military equipment and technology.

Accordingly, for contractors in the defense industry to succeed—framing their approach in response to an ever-growing diverse landscape of multiple markets may be best. Contractors should be thinking long-term as investments and partnerships in the current economy is now a demand for doing business long before any defense contract is signed. The days when a business could merely show up and bid on a fruitful contract are gone. To now get access, companies have to demonstrate assurance to the military and industrial base as well as a willingness to transfer technology skills in advance. This type of investment might be ten years or more, and some companies will struggle to justify the expense, but it stills stands as a winning strategy for some contractors.

Lastly, contractors must develop relevant capabilities and find a way to control cost the best way possible. To evolve from export and transactional work model to a localization approach, meaning the process of adapting a product or content to a specific locale or market; contractors will need to strengthen some of their abilities and develop new ones. For example, defense contractors must be able to cooperate with and regional train companies they partner with; this is to make sure that components and parts acquired regionally are built to the same specifications and standards that the defense contractor is acclimated to in other parts of its supply network. This approach can become hard work, yet it will create a more efficient workforce and environment. Furthermore, the cost is also crucial for continued success in the defense industry. Moreover, although defense contractors can turn to developing countries for new contracts, lower commodity prices and things in the like, it is still essential to have other strategies. Meaning, contractors should be cost competitive wherever they seek markets. Since Western countries workforce is steadily aging and thus has a scarcity of skilled A&D workers driving up cost, it would be smart for contractors to form meaningful joint ventures in developing nations.