Everything You Need to Know About SBA CAPLines
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In this article, we’ll review the four SBA CAPLine programs, including what a SBA CAPLine is, what the requirements for each program are, how you could spend the financing, and how to successfully apply. By the end of this post you should have a good indication of which CAPLine is right for your business.
What Are SBA CAPLines?
The SBA CAPLine program provides small business owners with fixed or revolving lines of credit up to $5 million to help them meet their cyclical and short-term working capital needs. There are four options under the SBA CAPLines umbrella, which we’ll cover below.
Types of SBA CAPLines
This financing product covers the costs of one or more specific contracts, subcontracts, or purchase orders. In addition, this includes overhead and administrative expenses incurred during contracts.
Seasonal Line of Credit
If you own a seasonal business, this type of short-term financing can be used for expenses that are necessary to running your seasonal operations. It’s important to note that it can only be used to finance seasonal increases in accounts receivable, inventory, and labor costs. You can’t use a seasonal line of credit to maintain business activity during slow periods of the year, so keep this in mind prior to applying. If you’re looking for financing for your business during the off-season, you’ll be better off pursuing other options.
Proceeds from this loan can be used to cover labor, building materials and supplies, rental equipment, building permits and inspections, utility connections, landscaping, and septic tank construction. If the cost of the land doesn’t exceed 20 percent of the project cost, it may be eligible for coverage.
Working Capital Line of Credit
This option can be used strictly for short-term working capital and operating needs. You can’t use the proceeds to pay delinquent taxes or trust funds. In addition, it may not be used to cover floor planning.
SBA CAPLine Requirements
There are a few general requirements you need to meet to be eligible for an SBA loan, including:
- Be a small business, as defined by the SBA.
- Prove that you can repay the loan.
- Be a for-profit business.
- Conduct business in the U.S. with a physical business location on U.S. soil.
- Prove that you have invested your own time and money into the business.
- Demonstrate that you haven’t been able to get funds from any other lender.
Additional requirements will vary depending on the lender you choose. If you meet the following criteria, your chances of being approved for a SBA Loan are much higher:
- Credit score of at least 620.
- At least two years of business history.
- At least $100,000 of annual revenue.
In addition, each type of SBA CAPLine has its own qualifying factors:
Contract Line of Credit
- Prove your ability to make a profit based on completion of similar contracts.
- Demonstrate that you can bid and perform the type of work outlined by the contract.
- Have the financial and technical ability to complete the contract on time and generate a profit.
Seasonal Line of Credit
- Been in business for at least one full calendar year.
- Prove that your business has a pattern of generating seasonal activity.
Builders Line of Credit
- Be a construction contractor or home builder with the proven ability to complete contracts.
- Perform the construction or renovation with at least one supervisor on the job site throughout construction.
- Deliver prompt and significant renovations.
- Demonstrate previous success in bidding and completing projects of comparable scope.
Working Capital Line of Credit
- Must generate accounts receivable or have business inventory.
How to Apply for A SBA CAPLine
After you have determined eligibility, follow these steps to apply for a SBA CAPLine:
1. Choose a SBA Loan Provider
Finding a reputable SBA Loan provider is a top priority for any small business owner seeking financing through this medium. You can choose to work with a traditional financial institution or opt to hire a broker. Before selecting an SBA Loan provider, ensure that you meet their requirements so that you don’t waste your time.
2. Organize Your Paperwork
The SBA provides a comprehensive checklist to help you gather the necessary paperwork to complete your application.
3. Complete the SBA Loan Application
Your SBA loan application will vary depending on the lender you choose; however, most lenders request basic information about your business and the purpose of your loan request. The SBA may also require your…
- Executive summary
- Business profile
- Ownership breakdown
- Management experience
- Breakdown of how financing will be used
- Statement of how you plan to repay the loan
As part of the application process, you’ll be required to complete SBA forms, which will vary depending on the type of business you own. Some of the required forms include:
- SBA Form 1919: This document is used to collect borrower information and is required when applying for all 7(a) loans.
- SBA Form 912: This SBA form is a statement of your personal history and is used to evaluate your individual character.
- SBA Form 413: This document analyzes the financial health of anyone who is a proprietor of the business.
- SBA Form 159: This is only required if you hired someone to help you complete your SBA loan application
4. Meet with Your Broker
Once you’ve completed your paperwork, you should meet with your broker to complete your SBA CAPLine application. At this point, the responsibility shifts from you to your lender to complete the process and close the loan.
Is an SBA CAPLine Right for Your Business?
SBA CAPLines are complex products to understand, but the potential benefit to your small business can’t be ignored. Now that you’re armed with the most essential information about each SBA CAPLine program, picking the right one should seem less daunting!
If your business has utilized an SBA CAPLine program, tell us about your experience in the comment section below!
Editor’s Note: This post was updated for accuracy and comprehensiveness in October 2018.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.