What Are CAPLines? 4 SBA Lines of Credit You Need to Know About

Before we take a deeper dive into the SBA’s CAPLine program—and determine whether it’s right for you—let’s take a few moments to talk about what the SBA is and how its services differ from traditional loan programs. SBA loans are backed by the Small Business Administration, a government-run program that aims to help strengthen American businesses. The Small Business Administration has delivered millions of loans to American workers since it was established in 1953. Since then, its primary mission has been to, “aid, counsel, assist, and protect, insofar as possible, the interests of small business concerns.”

The SBA has evolved in recent years to encourage the small business in more ways, with programs tailored to reach women, minorities, low-income, and veteran business owners.

By far the most popular SBA program is the SBA 7(a). That’s because it provides a lump sum to fund startup costs, purchase new land, machinery, or storefront furnishings, undertake growth projects, and more. But sometimes these larger lump sums aren’t the best fit, and a revolving line of credit — such as the one offered by the CAPLines program— makes more sense.

Go to our guide on best business line of credit options.

What Are CAPLines?

Most people associate the SBA loan program with traditional lump-sum, small business financing; many business owners aren’t aware that lines of credit are also available to them. There may be many situations in which a line of credit just makes more sense than a traditional loan. Whether you’re facing an upcoming project with a looming, uncertain budget, or extra seasonal requirements for inventory due to your business model, CAPLines (SBA lines of credit) may prove to be invaluable.

Read on to find out more about the four SBA loan programs that offer lines of credit under the CAPLines umbrella.

The 4 Types Of CAPLines

There are four distinct loan programs offered under the CAPLines program for small business owners. Offering loans of up to $5 million, backed by a 75-80% SBA guarantee, this program provides necessary funds to business owners who may need a revolving line of credit while easing the burden of risk for lenders. Thanks to that SBA guarantee, acquiring the financing you need for those cyclical ebbs and flows in your revenue may be more accessible than you think.

The four types of CAPLine loans are the Working Capital CapLine, Seasonal CAPLine, Contract CAPLine, and Builder’s CAPLine. We will go into each in much deeper detail below, so keep reading to find out which may be the perfect fit for you.

CAPLine Type Loan Use

Working Capital CAPLines

Lines of credit that can be used for short-term needs such as working capital or operating expenses. 

Seasonal CAPLines

Lines of credit used by seasonal businesses to cover the costs of seasonal increases in accounts receivable or inventory. Seasonal CAPLines can not be used to cover costs during the off-season. 

Contract CAPLine

Lines of credit available for contractors to cover the costs of specific contracts. Credit lines can be used for overhead and general / administrative expenses. 

Builder’s CAPLine

Lines of credit used for expenses related to the construction and renovation of a residential or commercial buildings for resale. This line can be used for costs such as labor, supplies, materials, landscaping, or other substantial costs during the construction and renovation process. 

Working Capital Line of Credit

A Working Capital Line of Credit is a CAPLines program geared toward businesses that sell on credit. If that sounds like your business model, it may make sense for you to consider this type of loan—especially if you’ve struggled with the availability of financing from other types of loans.

Working Capital CAPLine loans offer a source of financing in the form of a revolving line of credit that can be used for your short-term operating and working capital needs. However, funds from this type of loan can not be used to pay state sales tax or other similar trust funds, nor can you use them to pay delinquent withholding taxes or floorplanning. For more on collateral requirements, see the SBA Line of Credit Eligibility & Collateral Requirements section below.

Seasonal Line of Credit

A Seasonal Line of Credit CAPLine can be used to finance businesses that require additional inventory, accounts receivable, or labor at certain times of the year. It’s a misconception that this type of credit is meant to get you through the off-season, as the proceeds must go towards supporting growth during high-volume periods rather than boosting your working capital during slow periods.

A seasonal line of credit works great for business owners who understand their seasonal patterns and want to avoid taking one lump sum. Lines of credit can relieve holiday pressures and help you keep momentum to fulfill growth during those busy seasons—it’s a win-win.

Contract Line of Credit

A Contract Line of Credit is there to fulfill one purpose: to finance the costs of specific contracts. Funds can be used to cover overhead or administrative costs and general expenses, too, as long as these are allocable to a specific contract or contracts.

When applying for a Contract Line of Credit through CAPLines, consider that the money cannot be used for certain purposes, including:

  • Permanent working capital
  • Purchasing fixed assets
  • Paying delinquent taxes
  • Refinancing existing debt
  • Financing a contract that is already significantly underway
  • Change of ownership for floorplan financing
  • Covering a markup or profit
  • Financing the performance of another contract

Other SBA loan programs (the 7(a) program comes to mind) would be more appropriate for the above financing needs. Contract Line of Credit CAPLines should only be considered if you need funding for one or more specific contracts, and you’ll have to account for those for in relation to the work or outcome.

Builder’s Line of Credit

Similar to the Contract Line of Credit, a Builder’s Line of Credit can only be used for very specific purposes. If you’re a business owner who needs to finance the cost of direct expenses incurred during a construction project, this may be your opportunity.

You can’t use the funds to purchase vacant land for future construction or hold any rental property for future rehab, but you can use funds for the following:

  • Labor
  • Supplies and materials
  • Equipment rental
  • Direct fees like permits, inspections, etc
  • Utility connections
  • Septic tank construction
  • Landscaping
  • Renovation (over ⅓ of the purchase price or fair market value)

When you’re developing residential or commercial properties to resell and you need a line of credit to cover expenses, the Builder’s Line of Credit may be the right fit for your needs. Read on below to find out more about CAPLine requirements, eligibility, and how to get started.

SBA Line Of Credit Eligibility & Collateral Requirements

To qualify for any type of loan through the SBA, including CAPLines, you’ll need to meet the SBA size standards for a small business, operate for profit, and have reasonable equity to invest. There are certain requirements for size depending on industry and type of business—you can check out the SBA size standards to see if you qualify.

The most basic things you’ll need to do first are demonstrate your need for the funds and show that your business (or your business plan if you’re a startup) and credit score are healthy. In general, to receive an SBA CAPLine, you must:

  • Be a small business as defined by the SBA
  • Demonstrate you have the ability to repay the loan
  • Operate for profit 
  • Conduct business in the U.S. and have a physical location in the U.S.
  • Show that you have invested your own money and time in your business
  • Prove that you were not able to obtain financing from other lenders
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Because each CAPLine meets a specific need, there are some variations in the requirements for each distinct type. Here’s a quick look of what to expect for each below.

Working Capital Line Of Credit

To obtain a Working Capital Line of Credit, you must:

  • Generate accounts receivable or have inventory
  • Agree to a loan term of ten years or fewer

Collateral requirements are the first lien on accounts receivable and inventory.

Seasonal Line Of Credit

For a Seasonal CAPLine, you must:

  • Have been operational for at least one year
  • Demonstrate a predictable pattern of seasonal activity
  • Agree to a loan term of ten years or fewer

There are no specific collateral requirements for Seasonal CAPLines.

Contract Line Of Credit

If you want a Contract CAPLine, you must:

  • Have the ability to bid on and perform the identifiable type of work that the contract requires
  • Secure the financial capacity and expertise to finish the contract for a profit and on time
  • Demonstrate that you can operate at a profit based on the completion of your previous contracts

Collateral requirement is a first lien position on the contract and proceeds.

Builder’s Line Of Credit

To meet the requirements for a Builder’s CAPLine, you must:

  • Be a contractor or home builder in construction with demonstrable managerial and technical prowess
  • Have at least one of your supervisory employees on site or perform the work yourself
  • Demonstrate a plan for prompt and significant renovations (over a ⅓ of value)
  • Show that you have successfully bid and completed a comparable project

Collateral requirements are the first lien on accounts receivable and inventory

SBA Line of Credit Rates & Terms

The table below lays out what you can expect regarding CAPLine rates and terms for a loan through the SBA. You can also view current SBA loan rates to see the latest figures.

Term Rates/Fees

Maximum Borrowing Amount

$5 million

Maximum Term Length

  • 5 years for Builder’s CAPLines
  • 10 years for Seasonal, Working Capital, and Contract CAPLines

Percentage Guaranteed By The SBA

  • 85% for loans below $150,000
  • 75% for loans above $150,000

Interest Rates

Base rate + 2.75% to base rate + 4.75%

Fees

  • Guarantee fee of 0.25% – 3.75% of the portion of the loan guaranteed by the SBA
  • Other possible fees charged by the bank / partner lender

Some additional fees through the CAPLines program include packaging or service fees, late payment fees, and appraisal and environmental reports if applicable; renewal fees apply for a short-term loan that exceeds twelve months. Because these are revolving lines of credit, expect some differences as far as interest rates, too. Rates can be fixed or variable, so make sure you understand the terms before deciding what’s best for your business needs.

Alternatives To SBA CAPLines

For some businesses, a CAPLine just doesn’t fit. Whether it’s that you don’t meet the requirements, you need something faster, or you simply want to arm yourself with more knowledge, learning about non-traditional, online lines of credit can be an important step in the decision-making process.

Online lenders can provide an easier avenue to much-needed funds—not to mention that they don’t have as many requirements about how you can use the cash. When you’re considering whether a CAPLine or a private lender is best, consider that you’ll probably have to pay a little higher rates for that freedom. You’ll likely find that the borrowing amounts and terms for an online loan aren’t as good as they will be for CAPLine—but for some businesses, an online loan may still the right choice overall.

If you would like to see what is out there in the world of online lenders, take a look at our business line of credit comparison page. You can also find longer reviews on online lenders such as Kabbage, OnDeck, and BlueVine if you want to do even more research on your options.  It never hurts to shop around!

Quickly compare top traditional line of credit options:
Lender Borrowing Amount Draw Term Draw Fee APR Next Steps

$6K – $100K 6 months None Starts at 13.99% Apply Now

$2K – $5M Varies Varies Varies Apply Now

$5K – $5M 6 months 1.50% per draw 21% – 65% Apply Now

$1K – $100K 12 weeks None 12% – 54% Apply Now

Final Thoughts

While CAPLines may be among the more complex funding programs offered by the SBA, this form of financing can provide many benefits to businesses that meet requirements and would benefit from a revolving line of credit. Hopefully, now that you have more information at your disposal, choosing what type of small business loan to focus on should feel less overwhelming.

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