SBA program
SBA CAPLines: four lines of credit for working capital
Four SBA line-of-credit programs for seasonal swings, specific contracts, receivables and construction. Cheaper than the alternatives and barely marketed.
CAPLines is the SBA's line-of-credit family, delivered through 7(a). There are four subprograms and they solve genuinely different problems. They are materially cheaper than the products most businesses reach for in a cash squeeze, and they are the least advertised thing the SBA does, because a line of credit generates far less lender revenue than an advance does.
What CAPLines is for
The SOP describes CAPLines as financing the short-term operating capital needs, revolving and non-revolving, of small businesses. Proceeds can be used to create current assets, or to provide financing against current assets that already exist.
That is the clearest statement of the right use: inventory you must buy, receivables you are waiting on, labor on a contract. It is not for equipment, not for property, and not for covering losses.
The four subprograms
| Subprogram | Who qualifies | What proceeds may fund |
|---|---|---|
| Working Capital CAPLine | You must generate accounts receivable (not notes receivable) and/or hold inventory. | Short-term working capital and operating needs only. Not delinquent withholding or trust-fund taxes, not floor plan financing. |
| Contract CAPLine | You must show you have completed similar contracts profitably, can bid and project costs accurately, and have the capacity to finish on time and at a profit. | Costs of one or more specific contracts, including allocable overhead. |
| Seasonal CAPLine | In operation at least 12 calendar months, with a demonstrable pattern of seasonal activity. | Seasonal increases in receivables and inventory, and in some cases the associated labor costs. |
| Builders CAPLine | Small general contractors building or rehabilitating residential or commercial property for resale. | Construction or rehabilitation for resale — an explicit exception to the usual rule against financing property held for sale. |
The restrictions worth knowing before you apply
- Contract CAPLine proceeds are ring-fenced per contract. Advances financing one contract may not fund another, and payments received on one contract must not repay another. You will be accounting for them separately.
- Contract CAPLines cannot cover mark-up or profit, only costs — and not a contract where significant performance has already begun.
- Seasonal CAPLines cannot be used to maintain activity through the slow period. They fund the seasonal build-up, not the trough. This surprises people, and it is worth reading twice if you were planning on the opposite.
- Neither Seasonal nor Contract CAPLines may refinance existing debt.
- Change of ownership is not an eligible use for CAPLines at all.
- Fixed assets bought on a Working Capital CAPLine must be refinanced out into an appropriate term facility within 90 days of the lender discovering it.
Why so few borrowers end up with one
Not because they are hard to get. Because almost nobody is selling them.
- A line of credit earns a lender far less than an advance or a term loan, so there is little marketing behind it.
- They take longer to arrange than a same-week advance, which is exactly the wrong property for a business that waited until the crisis.
- They require the reporting discipline — receivables aging, inventory reports — that many small businesses have not set up.
Getting the timing right
A line of credit is cheap to hold and expensive to need urgently. Arrange it from a position of strength — during or just after your strong season, when recent bank statements look their best.
Size it from your own history rather than a guess: the cash gap planner maps 13 weeks of money in against money out and gives you the deepest point, which is the number the facility needs to cover.
Questions people actually ask
What is the difference between CAPLines and a regular business line of credit?
CAPLines is an SBA-guaranteed line delivered through the 7(a) program, so it carries SBA rate caps and program rules, and is usually cheaper than a conventional or online line. In exchange it takes longer to arrange and the proceeds are restricted to the eligible uses of whichever subprogram you are in.
Can I use a Seasonal CAPLine to get through my slow season?
Not as the SOP writes it. A Seasonal CAPLine funds the seasonal increase in receivables, inventory and associated labor -- the build-up before the season. It states explicitly that funds must not be used to maintain activity during slow periods.
Do CAPLines require collateral and a personal guarantee?
Expect both, as with essentially all 7(a) lending. The line is typically secured against the current assets it finances, and owners of 20% or more will be asked to guarantee.
Can a Contract CAPLine pay me my profit on the contract?
No. Proceeds fund the costs of performing the contract, including allocable overhead and general and administrative expenses, but the SOP excludes any mark-up or profit.