CAPLines is the program under which the SBA helps small businesses meet their short-term and cyclical working-capital needs. A CAPLines loan can be for any dollar amount (except for the Small Asset-Based Line), and the SBA will guarantee 75 percent up to $750,000 (80 percent on loans of $100,000 or less).
There are five short-term working-capital loan programs for small businesses under CAPLines:
This line advances funds against anticipated inventory and accounts receivables for peak seasons and seasonal sales fluctuations. It can be revolving or nonrevolving.
This line finances the direct labor and material costs associated with performing assignable contract(s). It can be revolving or nonrevolving.
If you are a small contractor or builder constructing or renovating commercial or residential buildings, this line can finance your direct labor and material costs. The building project serves as the collateral, and loans can be revolving or nonrevolving.
Standard Asset-Based Line
This is an asset-based revolving line of credit that provides financing for cyclical, growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is remitted to the lender. Businesses continually draw, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses. Because these loans require continual servicing and monitoring of collateral, additional fees may be charged by the lender.
Small Asset-Based Line
This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, providing the business can consistently show repayment ability from cash flow for the full amount.
Use of Proceeds
CAPLines may be used to:
- finance seasonal working-capital needs;
- finance direct costs needed to perform construction, service and supply contracts;
- finance direct costs associated with commercial and residential building construction without a firm commitment for purchase;
- finance operating capital by obtaining advances against existing inventory and accounts receivable;
- consolidate short-term debt.
Terms, Interest Rates and Fees
Each of the five lines of credit has a maturity of up to five years, but, because each is tailored to your individual needs, a shorter initial maturity may be established. You may use CAPLines funds as needed throughout the term of the loan to purchase assets, as long as sufficient time is allowed to convert the assets into cash by maturity.
Interest rates are negotiated with your lender, up to 2.25 percent over the prime rate. The guaranty fee is the same as for any standard 7(a) loan.
The SBA places no servicing-fee restrictions on the lender for the Standard Asset-Based Line but requires full disclosure to ensure that fees are reasonable. On all other CAPLines, the servicing fee is restricted to 2 percent based on the average outstanding balance.
The primary collateral will be the short-term assets financed by the loan.