SBA CAPLines – How Small Businesses Benefit From This Loan Program

This article explains the types of SBA CAPLines loan, the benefits of SBA CAPLines loan, and how to apply for SBA CAPLines loan.

The Small Business Administration (SBA) administers several lending programs to assist companies in obtaining finance on advantageous terms. Through revolving lines of credit, SBA CAPLines intends to assist small firms in managing their cyclical cash flow requirements. Four SBA lines of credit products are included in the SBA CAPLines, offering small firms access to up to $5 million in short-term operating capital. It works well for companies who need a revolving line of credit to cover ongoing expenditures or handle unforeseen ones. Borrowers must fulfill certain eligibility requirements to get financing via SBA CAPline. This article explains the types of SBA CAPLines loan, the benefits of SBA CAPLines loan, and how to apply for SBA CAPLines loan.

What is the SBA CAPLines loan program?

A line of credit is available to small companies under the SBA CAPLines umbrella program to help them with their periodic and short-term working capital requirements. CAPLines provides financing up to $5 million with 10-year payback periods. It’s a line of credit, so you may use it whenever you need to.

Types of SBA CAPLines loan programs

There are four types of loans available through the SBA CAPline program. Let us brief them.

Types of SBA CAPLines loan programs

  • SBA Seasonal Line of Credit Loan Program – If you operate a seasonal company, you may utilize this kind of short-term financing for costs related to managing your seasonal activities. The borrowing party should pay attention to the fact that the credit may only be used to cover seasonal spikes in receivable accounts, stock, and labor expenses. Before applying, remember that you cannot utilize a seasonal SBA line of credit to continue operating your company during sluggish seasons. You should look into other funding sources if you need finance for your company during the off-season.
  • SBA Contract Line of Credit Loan Program – The expenses of one or more particular contracts, subcontracts, or purchase orders are covered by this finance instrument. Additionally, this covers overhead and office-related costs spent during contracts.
  • SBA Builders Line of Credit Loan Program – The SBA loan program for Builders can cover the costs that arise from this loan labor, construction supplies, rental equipment, building licenses and inspections, utility connections, septic tank construction, and landscaping. The land cost may qualify for coverage if it doesn’t surpass 20% of the project cost.
  • SBA Working Capital (Asset-based) Line of Credit Loan Program – Small firms may transform short-term assets like unpaid invoices into cash using a working capital CAPLine. Similar to the regular 7(a) standards, your company must produce accounts receivable or maintain inventory to qualify for this. Finance that would not be possible without the working capital CAPLine is made accessible.

Benefits of SBA CAPLines loan program

The SBA CAPLines program offers major benefits to companies because interest is only charged on the amount borrowed. More cash is always readily and easily accessible up to the maximum loan amount. Here are some other benefits:

  • Regular payments should be established.
  • It can be put to a lot of different uses.
  • The interest rate is comparatively low.
  • Lengthy payback period.

Drawbacks of SBA CAPLines loan program

Despite the benefits mentioned above, the complexity and length of the application often keep people from taking advantage of the SBA CAPlines. Here are the main drawbacks:

  • The application procedure is lengthy.
  • A penalty for early payment is possible.
  • Interest rates on variable loans might rise.

SBA CAPLine fees

The SBA likewise sets the maximum amounts your lender may charge in fees. An SBA guarantee fee, which may be as much as 3.75% of the authorized line of credit, is one of the highest costs you could be assessed. The SBA promises or guarantees that this charge will cover up to 85% of your insurer’s damages if you fail on your loan in return for a commitment or guarantee from the SBA. Additionally, other costs, such as –

  • Packaging fees range from $2,000 to $4,000; they must not be higher than those for loans of comparable size that are not SBA-guaranteed.
  • Aside from a working capital SBA loan program, which may go beyond 2% due to the additional service needed, the extraordinary servicing cost is capped at 2%.
  • All direct costs associated with the loan, including title, appraisal, environmental report, attorney, and business valuation fees, are reimbursed as third-party expenses.

Eligibility Requirements for the SBA CAPLines loan program

Applications for CAPLines must adhere to the same standards as those for SBA 7(a) Loans, including:

  • Operating in the United States or its regions for profit
  • Possessing investable owner equity
  • Before requesting financial aid, using other financial resources, such as personal assets

Additionally, you must adhere to the following minimal standards of SBA CAPlines:

  • 680 as the minimum credit score
  • No recent defaults, bankruptcies, or unpaid taxes
  • Temporary collateral, such as bills or project agreements
  • Down payment of 10% or more
  • Owners guarantee at least 20%

Applying for the SBA CAPLines loan program

While the application procedure for an SBA CAPLine may vary depending on the lender, it is comparable to that for an SBA 7(a) loan and normally takes 90 days from application to financing. You must fill out a form and submit a ton of documents.

Required documents

You must submit the following details in each of the four SBA CAPLines credit programs in addition to the paperwork needed for an SBA 7(a) loan:

For a seasonal SBA CAPLine

You need to provide the following documents:

  • A 12-month cash flow history broken down by month.
  • Cash flow forecasts for each month over the next 12 months.

Your lender will use them to calculate the loan amount you qualify for, and it will be dependent on how much your predictions indicate you need.

For Contract CAPLine

The extra paperwork you must provide with an SBA CAPLine contract are:

  • Project cost schedule – You must make sure that each expense is specifically included in this schedule, including all labor, material, and overhead costs related to the contract, subcontract, or purchase order being funded, excluding your profit.
  • Latest yearly profit and loss statement – Your lender will analyze your P&L statement to determine your ability to repay the loan amount; you should be specific about any increases or declines attributable to the funded contract.

Lastly, you must provide a copy of the contract, subcontract, or purchase order that the SBA will be using to finance it with the SBA line of credit.

For a builder SBA CAPLine

You may also need to furnish the following documents:

  • You must submit a monthly cash flow forecast for all the work you intend to do on the project supported by the SBA line of credit.
  • If you are building a property to sell a third party under contract, such as a pre-sold house, you must provide a letter from their lender demonstrating that long-term financing is available.
  • You could be required to provide a statement from a real estate broker proving that the project and the planned price are reasonable for the neighborhood if you’re creating a speculative property, such as a house that hasn’t yet been sold.
  • For your lender to make payments, you may need a document from an architect, engineer, or appraiser confirming their willingness to conduct inspections and verify the work is finished.

For Working Capital CAPLine

With an SBA CAPline for working capital, you must give the data necessary for your lender to determine your borrowing base certificate (BBC). After approval, your lender will probably additionally request the following data from you each month to ensure your collateral is enough:

  • Your aged A/R report
  • Aging report for accounts payable (A/P)
  • Report on inventory

SBA CAPLines loan program interest rates

Individuals can seek up to $5 million with an interest rate of 2.25 to 4.75% with an addition of a base rate, such as SBA peg rate, Prime, or LIBOR. The loan repayment terms vary anywhere up to 10 years.

SBA CAPLine credit repayment terms and structures

The seasonality of your firm, the anticipated end date of your contract, or the deadline for your project all affect how quickly you must return an SBA line of credit. There must be a clear way for the CAPLine to be repaid from the working capital linked with the line for you to be approved for an SBA loan program. Each category has a different SBA CAPLine term and structure

  • Seasonal CAPLine – Revolving, with a period of up to 10 years, the seasonal SBA CAPLine must be fully repaid when your company obtains money for the seasonal operation you funded, including when you sell your products in the stock and receive your A/R; otherwise, you’ll just be obliged to interest-only payments.
  • Contract CAPLine – You may borrow money against one or more purchase orders, contracts, or subcontracts for terms of up to 10 years. You’ll pay interest-only installments and return the credit line when your company receives payment for the contract.
  • Builders CAPLine – Depending on the loan’s length, you may borrow for a single or many projects for up to five years. You’re obliged to pay interest-only payments and return the CAPLine in full no later than three years after the project is finished or sold, whichever comes first.
  • Working Capital CAPLine – Revolving loan having a length of up to 10 years, with the option of recurring principal payments if your lender so requests; otherwise, you’ll give interest-only payments.

SBA CAPLine collateral requirements

For SBA CAPline credit programs, business collateral and a personal guarantee are necessary. Each sort of line of credit has different specific collateral requirements.

  • Seasonal CAPLine – Like an SBA 7(a) loan, this CAPLine requires standard collateral, whether it be personal or business-related.
  • Contract CAPLine – The first line of assignment on the particular purchase order, contract, or subcontract, along with the ensuing revenues, must be given to your lender. A universal commercial code (UCC) filing will be applied to the contract by the lender. If another lender has previously filed a first position lien on your assets, that might cause complications. Early on in the process, you should let your lender know whether you have any other debts so that, if necessary, they may be resolved.
  • Builders CAPLine – Your lender may only accept a second lien position on the properties you are building or remodeling if the primary purpose of your initial loan was to buy the property. They cannot accept anything below a second lien position. Based on the FMV of the project, the SBA restricts your loan-to-value (LTV) ratio for the sum of the first and second liens to 80%.
  • Working Capital CAPLine – All of your accounts receivable, inventory, and revenues from their sale or collection will need a UCC filing on the lender’s part. These same assets cannot be used as security for any other debts. To offer a safety net for the lender if you default on payments, your lender may place a cap on the amount you may borrow against the assets you pledge as collateral.

Business valuation to qualify for SBA CAPLine Loans

You could be obliged to acquire an impartial business valuation irrespective of the reason for your request for an SBA loan or the method used to achieve such financing. According to the SBA, this valuation assessment is necessary for the following reasons:

  • You want to borrow more than $250,000, excluding the assessed value of the equipment and/or real estate.
  • Either the buyer or the seller are people you know well. Additionally, you are engaging in business with a relative or a close friend.
  • You apply for a loan from a lender whose internal standards and procedures demand that a professional company appraisal be performed before any transaction.

The SBA has extra requirements that must be followed if your company needs an appraisal to be eligible for an SBA loan.

Get a business valuation to qualify for an SBA CAPLine loan with Eqvista!

Small businesses can address recurring short-term working capital needs with SBA lending programs via the SBA CAPLines. To be eligible for the program, you need to provide extensive evidence. The long and restrictive loan application processes include several requirements. You do not want to lengthen the process by providing inaccurate document information. Eqvista’s team of experts can assist with the business valuation required for SBA loans, which are far more effective and straightforward to get for any industry. If you wish to collaborate with us, get in touch with us today!

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