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Along with term loans, the SBA also offers four business lines of credit through their CAPLine program. If you need flexible, short-term funding for your business, an SBA line of credit is a great solution. Keep reading for details on how business lines of credit work, what you can use them for and what your options are with the SBA.
Page written by Paige Smith. Last reviewed on August 14, 2024. Next review due October 1, 2025.
A business line of credit is a form of financing that gives you access to a set amount of credit. With a revolving line of credit, you can use the full amount of credit repeatedly as long as you periodically bring your balance back to zero. A non-revolving line of credit, on the other hand, gives you credit for a one-time use. Once you use all the available credit, the line is closed.
Like a credit card, with a line of credit you only pay interest on the money you actually borrow. The interest rate can be fixed, meaning it stays the same for the length of your credit term, or variable, which means the rate changes with the market. Terms for revolving lines of credit can range from one year to 10 or more years, depending on the lender.
You can use a line of credit for a number of business financing needs, including:
A business line of credit is particularly helpful during temporary cash flow crunches, like when you’re waiting on client payments to come through but need to make payroll by the end of the week. You can also use a business line of credit when you want to take advantage of an exciting business opportunity or make a one-time investment without tying up your cash flow.
As with any type of business financing, there are advantages and disadvantages of taking out a line of credit.
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.
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.
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.
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.
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.
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.
With all four CAPLines, you can get up to $5 million to use for your business’s financing needs. The credit term for Seasonal, Contract and Working CAPLines is 10 years; the credit term for the Builders CAPLine is five years.
Similar to other SBA loans, if you own at least 20% of your business, you’re required to sign a personal guarantee on the CAPLine. This means your personal assets (like your car or home) are on the line if your business defaults on the CAPLine and can’t pay it off.
The interest rates for SBA CAPLines are the same as SBA 7(a) loans. The rates vary depending on the size of the credit line:
CAPLine lenders also charge a fee on the part of the loan that’s guaranteed by the SBA. Here are the fees:
To work out the monthly repayments of your loan, use our SBA loan calculator here.
The eligibility requirements for SBA CAPLines are similar to other standard SBA 7(a) loans. In addition to having a credit score that’s at least in the mid-high 600s, to qualify for an SBA line of credit your business must also:
Each CAPLine also has specific criteria you have to meet.
Consider these three factors:
Take the following steps to apply for an SBA CAPLine:
If you don’t want to apply for an SBA line of credit, consider these flexible financing alternatives:
If you need short-term funding, Swoop can help you weigh your options and make the decision that’s right for you. Just take a few minutes to register your operation, and you’ll get personalized financing support and access to helpful financing comparisons. Join Swoop today.
Written by
Paige Smith is a content marketing writer specializing in the intersection of business, finance, and tech. Paige regularly features on a number of B2B finance and fintech websites including Fundera, Funding Circle, Fundbox and Nav, amongst others.
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The SBA CAPLine program gives small businesses access to revolving or non-revolving lines of credit for short-term or working capital business finance needs.
No, the standard SBA 7(a) loan is a business term loan, which means you get a set amount of money upfront, then make repayments plus interest over time. However, the CAPLine program technically falls under the larger umbrella of 7(a) loans.
The easiest SBA loan to get depends on your business’s experience, financing needs and application. Make sure you check the eligibility requirements for the different SBA loans, and look into alternative financing resources if you don’t qualify.
With an SBA CAPLine, you can borrow up to $5 million. The same is true of an SBA 7(a) loan. For other SBA loan types, the amounts vary.
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