SBA line of credit

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. 

Paige Smith

Page written by Paige Smith. Last reviewed on May 16, 2024. Next review due October 1, 2025.

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What is a business line of credit?

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.

What can you use a line of credit for?

You can use a line of credit for a number of business financing needs, including:

  • short-term investments
  • regular operational expenses
  • maintenance costs
  • seasonal costs
  • inventory 
  • equipment
  • supplies 
  • emergency expenses

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.

Pros and cons of a line of credit

As with any type of business financing, there are advantages and disadvantages of taking out a line of credit. 

Pros 

  • You can use a line of credit for a wide variety of purposes, from ordering inventory to paying monthly utility bills. 
  • A line of credit gives you more options for covering your business costs, so cash flow is never too tight. 
  • Having a line of credit can give you peace of mind when the economy is uncertain.
  • You only pay for what you borrow, not what your credit limit is set to. If you have a higher limit and only need a little money, this means you accrue less interest. 
  • A line of credit gives you a chance to build up your business credit. Making payments on time and keeping your credit utilization ratio at 30% or below can improve your business credit score over time, opening you up to more financing opportunities and better terms in the future. 

Cons 

  • A line of credit with a variable interest rate can make it harder to budget for your payments and plan ahead. 
  • Interest rates can be high, depending on the lender. Average rates are between 8% and 80%. 
  • Some lines of credit come with extra fees, like late payment fees, monthly maintenance fees and draw fees, which can increase the total cost of your credit.

SBA line of credit: CAPLine program

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. 

Rates and terms for an SBA line of credit

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:

  • For lines of credit of $25,000 or less: The interest rate is the base rate plus 4.25% if the term is under seven years, and base rate plus 4.75% if the term is more than seven years. 
  • For lines of credit between $25,000 and $50,000: The interest rate is the base rate plus 3.25% if the term is under seven years, and base rate plus 3.75% if the term is more than seven years. 
  • For lines of credit above $50,000: The interest rate is the base rate plus 2.25% if the term is under seven years, and base rate plus 2.75% if the term is more than seven years. 

CAPLine lenders also charge a fee on the part of the loan that’s guaranteed by the SBA. Here are the fees:

  • For lines of credit of $150,000 or less: 2%
  • For lines of credit of $150,001 and $750,000: 3%
  • For lines of credit greater than $750,000: 3.5% for up to $1 million, plus an additional 3.75% of the guaranteed amount above $1 million. 

To work out the monthly repayments of your loan, use our SBA loan calculator here.

Qualifications for an SBA line of credit

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: 

  • fit within the SBA’s small business size standards
  • be a for-profit business
  • operate in the US
  • be in good standing with government loans
  • demonstrate that you’ve used alternative financial resources, including your personal assets, before seeking financing. 

Each CAPLine also has specific criteria you have to meet.

  • Seasonal CAPLine: You must have been in operation for at least one calendar year, and be able to prove a pattern of seasonality (ie. regular revenue fluctuation) in your business. 
  • Contract CAPLine: You have to demonstrate that you can operate profitably based on past contracts, prove that you can perform the work the contract is asking for and be able to complete the contract on time and at a profit. 
  • Builders CAPLine: You must be a construction or builder contractor, perform the construction/renovation work with at least one supervisory employee on the site at all times and be able to demonstrate prior success with bidding for and completing a construction or renovation project.
  • Working CAPLine: You must either generate accounts receivable or have inventory.

How do I find the right SBA line of credit for my business?

Consider these three factors: 

  1. Your industry and business model: Unless you’re a seasonal business, do contract work or work in construction and renovation, your best bet is probably the Working CAPLine, since it covers general short-term working capital needs. 
  2. Your financing needs: Make a list of the various expenses you need help with, and total up the cost. 
  3. Your business goals: Reflect on your immediate and long-term business goals, then consider which line of credit would help support those goals. 

How to apply for an SBA line of credit

Take the following steps to apply for an SBA CAPLine:

  1. Gather your financial documents: That includes your profit and loss statements for the last three years, your year-end balance sheets for the last three years, tax returns for the past three years, month-to-month cash flow projections for a one-year period, your business certificate and license and records of your loan application history. You can see the full application checklist for SBA 7(a) loans here.
  2. Make sure you can provide collateral and/or a personal guarantee: For lines of credit over $350,000, the SBA requires collateral. If you own 20% or more of your business, you also have to sign a personal guarantee on your credit line. Review your assets to see what you’re able to put down if needed.  
  3. Contact a local lender in your area and follow their application instructions: Search for an intermediary lender in your area here, or register with Swoop to get matched with the right lender for you.

Alternatives to SBA lines of credit

If you don’t want to apply for an SBA line of credit, consider these flexible financing alternatives:

  • SBA term loan: The standard 7(a) loan and SBA 504 loan are both good choices if you need a large amount of upfront money to cover business expenses and can afford to wait a couple of months to hear back. If, however, you need funds as soon as possible, consider the SBA Express Loan. 
  • Business credit card: A business credit card is a great way to pay for recurring operating expenses and cover specific purchases, like inventory and supplies. However, depending on the card provider you choose, you could end up paying extra fees—and incurring a lot of interest if you only make the minimum payment each month. 
  • Invoice factoring: If you find yourself regularly waiting on client payments to come through, invoice factoring can give you temporary cash flow freedom. With invoice factoring, you sell your outstanding invoices to a factoring company in exchange for a lump sum upfront—usually around 80% of the outstanding invoice amount. The downside is that interest can be steep. 
  • Line of credit from an online lender: Many online lenders offer business lines of credit with flexible uses and fast turnaround times. The interest rates and terms will vary by lender, so make sure you do your research beforehand. 

Get one step closer to flexible financing with Swoop

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

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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FAQs about SBA lines of credit

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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