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Private credit lenders have found a new batch of clients: US government contractors short-changed by Elon Musk’s cost-cutting drive and trying to stay afloat.
Legalist, a private capital lender based in San Francisco, told the Financial Times that its “government receivables” business had extended more than $100mn in financing to dozens of contractors since the start of 2025, more than doubling the strategy’s previous total book of business. The group is looking to raise $250mn from investors to extend more similar loans.
Contracts worth more than $70bn have been abandoned by the so-called Department of Government Efficiency (Doge), led by Musk until his fallout with President Donald Trump in May, according to HigherGov, a private research service.
Loans from Legalist serve as bridge financing for government reimbursement on work that has been completed but not yet paid, often when traditional banks have balked at extending credit.
Eva Shang, who co-founded Legalist as a litigation finance investor in 2016 as a participant in the Y Combinator start-up development programme, said the company’s government contractor business had historically been “small time” and “slow going” but had quickly accelerated as the Trump White House sought to shrink the size of the federal government.
Doge had been envisioned by Musk and other Trump supporters as a way to slash trillions of dollars of government spending by cancelling government contracts, closing agency departments and firing employees en masse.
In January, Doge issued a “stop work order” for all existing grants and contracts held by the development agency USAID. Over the next few months, it went on to issue similar orders via the departments of housing and urban development, homeland security and veterans affairs, among several others.
Federal procurement rules allow contractors whose work is upended by policy changes to get their already sunk outlays reimbursed — eventually.
If a stop work order is subsequently lifted — as many of Doge’s orders have been — contractors are entitled to compensation for “reasonable costs” incurred during the lull. In other instances, Doge issued “terminations for convenience” for thousands of government contracts outright, which allowed contractors to claim expenses incurred during wind-down.
“It’s kind of common wisdom in the government contractor community that if you get a termination for convenience you can sometimes be paid more than you would have under the contract,” Shang said. Some industry observers cited the Biden administration’s termination of several contracts agreed by the first Trump administration for the construction of a southern border wall, which ended up costing the government billions of dollars.
Doug Monticciolo, co-founder and chief executive of Brevet Capital, a private investment firm that finances government contractors, told the FT that companies had been whipsawed by the new reality.
“Doge is having an impact,” he said. “Cancellations of contracts and curtailing programmes, we have been seeing the effects of all that.”
One contractor with USAID, who spoke on the condition of anonymity, said it found itself in a tough situation earlier this year with the government owing it nearly $200mn for services already rendered when a stop-work order was issued.
The company had existing credit lines with large banks but those facilities relied on historical accounts receivables that had already been collected to calculate a “borrowing base”. Those traditional financial institutions were unwilling to extend new liquidity amid the Trump actions against USAID, an agency targeted for an 83 per cent reduction in programmes by secretary of state Marco Rubio.
“Banks had been pricing us as low risk. That wasn’t true anymore and it was easier for them to walk away rather than find a solution,” said a finance executive at the contractor.
Legalist provided as much as a $75mn credit line that was secured against monies owed for work the contractor already performed and as well as “termination budgets” — what the government owed to make the company whole on previous expenditures for contracts that were to be cancelled.
“We are paying a pretty big premium relative to an asset-backed facility with a main street bank,” said the executive, but added that he appreciated the “creativity” of the Legalist loan.
Shang told the FT the government receivables strategy at Legalist, which has about 70 current borrowers, targets an interest rate of at least 12 per cent with the loan size roughly 50-80 per cent of the expected reimbursement.
The group overall manages $1.5bn across three different products, including litigation finance and bankruptcy loans. The government receivables strategy, with the surge in lending this year, is close to exhausting its $275mn of existing committed capital from various institutional investors.
Worries about the Trump administration failing to make good on payments owed have proven unfounded, in part due to existing rules and case law precedents.
“The government has been quite responsive to what our clients put in for reimbursement as long as they are not seeking a windfall from the terminations for convenience,” said Elizabeth Jochum, a partner at Blank Rome in Washington whose clients are government contractors.
