The U.S. Small Business Administration has a loan product for practically every situation a small business owner might face. And that includes a need for short-term or cyclical working capital.
Through its CAPLines program, the SBA will help guarantee lines of credit worth up to $5 million.
And there are a number of ways those funds can be put to work. Maybe you’ve got a customer who wants to place a major order, one that’s beyond your current capacity. A line of credit can pay for the extra materials or equipment you require to do the work.
Or maybe you’ve already completed a number of jobs for clients who haven’t paid up yet because they received 60-day terms. Your employees, your landlord and the utility company, however, need to be paid now. A line of credit can help you meet the short-term cash need until the checks start arriving.
Historically, borrowers haven’t used CAPLines as often as they have other SBA loan products, but the program was retooled in 2011 to be more user-friendly. Small businesses can use a contract, purchase order or receivable as collateral for a CAPLines loan. Owners no longer have to put up their personal assets as collateral in cases where their businesses lack equipment or real estate.
CAPLines isn’t nearly as large as SBA’s flagship 7(a) loan program, which backed more than $19.2 billion in loans during fiscal year 2014. But the changes in 2011 have led to a significant increase in the number of small businesses that use this program. In 2010,
CAPLines backed more than $70 million in credit lines. In the most recent fiscal year, that number was above $411 million.
There are a few different kinds of CAP-Lines products, customized to different kinds of companies.
The Working Line of Capital Program, for example, offers financing according to how much a company has in receivables or inventory, and it’s available on a revolving basis.
The Builders Line Program helps construction companies build or rehab properties when they don’t have a buyer lined up. These loans typically are due in three years, but can be extended to five.
The Seasonal Line of Credit Program helps small businesses pay for extra inventory, labor and materials for the busy times of the year. Eligible businesses must be at least
1 year old and prove they’re in a seasonal line of work. This type of product comes with an annual “clean up” requirement where the borrower must pay off the outstanding balance and not use the line for 30 days.
The Contract Loan Program, meanwhile, can help small businesses pay for the cost of fulfilling a contract, subcontract or purchase order. How long do these last? They are normally tied to the contract’s length, with a cap of 10 years.
