An SBA line of credit is a short-term financing solution that gives businesses flexible funds on an as-needed basis. As with other SBA loans, SBA lines of credit generally have favorable terms, including lower interest rates and higher credit limits. However, qualifying for an SBA line of credit can be tough.
The SBA’s lines of credit fall under the category of SBA 7(a) loans in a program called CAPLine. There are four types of CAPLines, each designed to help small businesses meet their short-term and cyclical working capital needs.
Seasonal CAPLine
A Seasonal CAPLine helps seasonal businesses cover the increased costs of accounts receivable, inventory and extra labor during their peak periods. The Seasonal CAPLine can be revolving or non-revolving. You can qualify for up to $5 million, but the credit amount you receive is based on your business’s cash flow projections and particular buildup of seasonal expenses.
Let’s say, for example, that you run a winter sports shop; you could use a Seasonal CAPLine to hire extra workers so you can extend your operation hours. Keep in mind, though: you can’t use a Seasonal CAPLine to bridge cash flow gaps during your slower season—you can only use it for costs associated with your high season.
Contract CAPLine
A Contract CAPLine, which can be revolving or non-revolving, covers the direct labor and materials costs associated with contract work. You can get up to $5 million to finance the cost of one or more contracts, sub-contracts or purchase orders, including overhead costs or general and administrative expenses.
Imagine, for example, that you run an interior design business and scored a major contract designing and decorating a hotel lobby. You could use a Contract CAPLine to purchase supplies and furniture upfront, as well as hire professional painters and light installation technicians.
Builders CAPLine
The Builders CAPLine is a revolving or non-revolving credit line for general contractors and builders who construct or renovate commercial or residential buildings. The Builders CAPLine gives eligible businesses up to $5 million to cover the cost of labor, supplies, materials, equipment rental, building permits and inspection fees, utility connections, construction of septic tanks and landscaping for specific projects. You can also use the line of credit to cover the cost of land—as long as it doesn’t exceed 20% of the total project cost.
If you own a construction business and landed a project renovating a neighborhood community center, for example, you could use the Builders CAPLine to hire workers, order materials and rent a mini excavator.
Working CAPLine
The Working CAPLine is a revolving line of credit for businesses that need extra working capital. You can get up to $5 million to use toward a wide range of financing needs, from ordering inventory and paying invoices to hiring employees or covering emergency costs. The Working CAPLine is especially helpful for businesses that extend credit to other operations.
SBA Express Loan
The SBA Express Loan isn’t part of the CAPLine program, but it’s another SBA line of credit option. If you’re eligible for the Express Loan, you can get a revolving line of credit of up to $500,000 for a maximum period of 10 years. The appeal of the Express is that it’s a faster process; the SBA will respond to your application within 36 hours.