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What are CAPLines?
CAPLines are a series of permanent loan programs under the SBA 7(a) that allow small business owners to take out loans specifically for seasonal or cyclical needs.
Short-term and cyclical needs can drive costs sky-high for small businesses. The SBA offers the CAPLines program to businesses that have such needs, and there are four distinct programs within the CAPLines loan that address them.
Each CAPLines loan program has terms and conditions that apply to it, specifically, as well as details that are common across the CAPLines program.
Contract Loan
For small businesses who make bids on contracts for specific types of work, such as construction or remodeling, the CAPLines contract loan has many benefits. Qualifications for the contract loan are the same as the SBA 7(a) standard loan eligibility requirements.
In addition, a small business must be able to demonstrate their ability to complete contracts they bid on, and have the financial and technical ability to perform on-time and on-budget.
All of the funds from the CAPLines contract loan must be used to cover costs related to specific contracts, including any subcontracts, purchase orders, or other overhead related to the contracts in question.
The maximum loan amount for the contract loan is $5 million, with maturity no greater than 10 years.
Builder’s Line
Another CAPLines program designed to help contractual businesses grow is the builder’s line. This loan has the same requirements as the SBA 7(a) standard loan, plus the small business must be a construction contractor or homebuilder. The SBA requires that borrowers be able to demonstrate their ability to complete projects, have the staff to keep management on-site at all time, perform major and timely renovations, and be successful bidders.
Similar to the contract loan, borrowers of the CAPLines builder’s line must use the funds from the loan for costs associated with the specific projects that are approved.
The builder’s line is a large loan, and goes up to $5 million. The term is short, however, and small businesses must be prepared for a five-year maximum maturity.
Seasonal Line of Credit
The SBA offers seasonal lines of credit through the CAPLines program that have the same basic requirements as the SBA 7(a) standard loan. In addition to those requirements, small businesses seeking funding must have been in operation for at least a year, and have a proven seasonal need.
The loans have a maximum loan amount of $5 million, with a guarantee of up to $3.75 million.
Small business owners must use the funds in ways that directly relate to seasonal needs, and not in ways that support the business during non-seasonal times. The seasonal line of credit is typically used for inventory and temporary labor.
Working Capital Line of Credit
Like the rest of the loan programs under the CAPLines program, the working capital line of credit has the same basic requirements as the SBA 7(a) standard loan. Small businesses must use the funds from the loan for operational needs, and related short-term needs. This program carries extra fees, and is also a revolving line of credit.
A business that uses credit for inventory or other purposes can also benefit from a working capital CAPLine program.
The terms are similar to a standard SBA 7(a):
Maximum loan amount of $5 million
Guarantee percentage is up to 75% for loans of over $150,000 and up to 85% for loans of $150,000 or less
Maturity is up to 10 years
What is a CAPLine loan?
CAPLine loans are loans offered by the Small Business Administration (SBA) to help small businesses grow. There are two types of CAPLine loans: the Contract Loan and the Builder's Line.
The Contract Loan is designed to help contractual businesses grow. To qualify, businesses must meet the same requirements as the SBA 7(a) standard loan, plus demonstrate their ability to complete projects, have the staff to keep management on-site at all times, perform major and timely renovations, and be successful bidders. All of the funds from the CAPLines Contract Loan must be used to cover costs related to specific contracts, including any sub-contracts, purchase orders, or other overhead related to the contracts in question. The maximum loan amount for the Contract loan is $5 million, with maturity no greater than 10 years.
The Builder's Line is also designed to help contractual businesses grow. To qualify, businesses must meet the same requirements as the SBA 7(a) standard loan, plus be a construction contractor or homebuilder. The SBA requires that borrowers be able to demonstrate their ability to complete projects, have the staff to keep management on-site at all time, perform major and timely renovations, and be successful bidders. The Builder’s Line is a large loan, and goes up to $5 million. The term is short, however, and small businesses must be prepared for a 5 year maximum maturity.
What are the different types of CAPLine loans?
The different types of CAPLine loans are:
- Seasonal CAPLine: Borrowers can only use the loan proceeds for seasonal increases of accounts receivable and inventory.
- Contract CAPLine: This is for the direct labor and material costs of fulfilling assignable contracts (revolving or non-revolving).
- Builders CAPLine: This is for the direct labor and material costs of an individual general contractor or builder that constructs or renovates commercial or residential buildings. The building project will be the collateral.
- Working Capital CAPLine: This is an asset-based revolving line of credit for businesses that can’t meet the credit standards of long-term credit. Repayment is made by converting short-term assets into cash, which is given to the lender.
Qualifications for the Contract loan are the same as the SBA 7(a) standard loan eligibility requirements. In addition, a small business must be able to demonstrate their ability to complete contracts they bid on, and have the financial and technical ability to perform on-time and on-budget.
All of the funds from the CAPLines Contract Loan must be used to cover costs related to specific contracts, including any sub-contracts, purchase orders, or other overhead related to the contracts in question. The maximum loan amount for the Contract loan is $5 million, with maturity no greater than 10 years.
What are the eligibility requirements for a CAPLine loan?
The eligibility requirements for a CAPLine loan are the same as the SBA 7(a) standard loan eligibility requirements. In addition, a small business must be able to demonstrate their ability to complete contracts they bid on, and have the financial and technical ability to perform on-time and on-budget.
What are the advantages of a CAPLine loan?
The CAPLines loan program offers several advantages for small businesses. The Contract Loan and Builder’s Line both have the same eligibility requirements as the SBA 7(a) standard loan, making it easier for small businesses to qualify. The maximum loan amount for both loans is $5 million, and the terms are short, with a maximum maturity of 10 years for the Contract Loan and 5 years for the Builder’s Line. Additionally, all of the funds from the CAPLines loan must be used to cover costs related to specific contracts, including any sub-contracts, purchase orders, or other overhead related to the contracts in question.
What are the disadvantages of a CAPLine loan?
The main disadvantage of a CAPLine loan is that it carries extra fees. Additionally, the loan proceeds must not be used to pay delinquent taxes or trust funds like state or sales taxes, and a borrower can’t use the funds to obtain fixed assets.
For more information, please see the SBA 7(a) CAPLines page.
The loan proceeds must also not be used to pay delinquent taxes or trust funds like state or sales taxes. Also, a borrower can’t use the funds to obtain fixed assets.
Case Study: Making Candles in New Orleans
Charles, a passionate entrepreneur in New Orleans, had always been fascinated by the art of candle making. He decided to open a unique boutique that sold artisanal, hand-poured candles made from natural ingredients. The shop, named Flickering Creations, quickly gained a loyal customer base, particularly during the holiday season and other festive occasions like Mardi Gras.
However, Charles faced a challenge: The seasonal nature of his business led to fluctuating cash flows, making it difficult to maintain inventory and cover operational expenses during slower months. He realized that he needed a financial solution to help him manage these short-term and cyclical needs.
Upon researching various financing options, Charles discovered the SBA 7(a) CAPLines program, specifically the Seasonal Line of Credit. This program seemed perfect for his situation, as it was designed to help small businesses like Flickering Creations manage their seasonal cash flow fluctuations.
Charles approached a local bank experienced in SBA lending and presented his business plan, along with financial statements and projections demonstrating the seasonality of his revenue. The bank approved a $150,000 Seasonal Line of Credit under the SBA 7(a) CAPLines program, giving Charles the flexibility to access funds as needed during the slower months, while only paying interest on the amount he used.
Thanks to the SBA 7(a) CAPLines Seasonal Line of Credit, Charles was able to maintain sufficient inventory levels, cover payroll, and meet other operational expenses during the off-peak months, ensuring that Flickering Creations could continue to thrive and delight customers year-round.
This is a fictional case study provided for illustrative purposes.
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