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What to Know About SBA Lines of Credit

SBA Lines of Credit: The Secret Weapon for Small Business Growth

Lines of credit are essential assets for any business, allowing business owners to account for unforeseen expenses. Additionally, small businesses with reliable track records can benefit from SBA loans to grow their business. This begs the question, are there SBA lines of credit that small business owners can utilize towards their business?

The Small Business Association offers four loans, which function as lines of credit for different needs. The CAP lines provide fixed or revolving lines of credit to meet the demands of growing small businesses. Additionally, the SBA offers express lines of credit. These loans are part of their express program that provides a quicker turnaround process at the cost of more severe terms.

The Small Business Association (SBA) works with lenders to fund small businesses in need. This article will cover the line of credit options the SBA offers, the terms associated with each option, and how you can apply for SBA lines of credit today.

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What is the SBA?

The Small Business Association (SBA) is a government-run agency that finances businesses in need. Rather than directly lending to small companies, it finds appropriate lenders and takes on the risks of loans it approves. If Small Businesses cannot repay a loan, the SBA takes on the debt, forgiving that small business. This risk removal makes loans from the SBA highly desirable and a robust option for small businesses.

Additionally, SBA offers the best term loans of any agency, providing exceptional interest rates, payback periods, and limited penalties compared to other loans. However, taking all these considerations into account, the drawback of SBA loans is the requirements and time to receive approval. To balance the risk the SBA guarantees, businesses must prove they can repay loans.

Small business owners with a proven track record, reliable income, and at least two years in business can consider SBA loans as the premium lending option.

There are several types of SBA loans, many of which are for designated purposes. While the most common options are the SBA 7(a) loan and express loan programs, lines of credit are available for businesses that qualify.

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SBA Line of Credit Options

Currently, the SBA offers the CAPline program, offering four loan types, and the SBA express line of credit. While each loan option provides a reservoir of funds to draw on, each has specific spending requirements and terms and is either fixed or revolving. Understanding the differences between each loan can help you determine which loan is best for your small business.

For each loan type, I’ll list the associated terms and the best applications for that loan, depending on your business needs.


SBA CAPlines

CAPlines are a loan system designed to meet the needs of seasonal businesses, such as restaurants or hotels. Additionally, it provides an option for many contract services, such as construction, entertainment, and any business with outstanding invoices.

Currently, on all CAPlines, the SBA guarantees up to 85% of LOCs up to $150,000 and 75% on LOCs greater than that amount. Additionally, loan amounts go up to $5 million with about 8% APR. These loans typically require collateral in the form of inventory or invoices.

The requirements to apply for CAPlines are similar to other SBA loans. Specifically, it would be best to have good credit (700+), at least two years in business, and robust annual revenue.

Note that additional requirements may be associated with each loan, limiting how you can spend the money. For example, Building CAPlines require money towards building expenses and will have different spending requirements than Contract CAPlines.


Seasonal CAPline

  • Up to 10-Year Terms
  • Fixed or Revolving
  • Accounts Receivable or Inventory as Collateral

Seasonal CAPlines are perfect for restaurants and other service industries that see considerable fluctuations in business throughout the year.

For example, you have a local Flower Shop that sees asymmetrical business throughout the year. During slow months, you use the Seasonal CAPline to pay overhead costs and wages. Then, in preparation for busy seasons such as Christmas or Valentine’s Day, you purchase a large amount of inventory to sell. After the busy season, you repay the loan and reinvest your profits.


Contract CAPline

  • Up to 10-Year Terms
  • Fixed or Revolving
  • Invoices as Collateral

Contract CAPlines are a workaround to Invoice Financing and provide a solution to covering the costs of outstanding invoices. You use funds from the CAPline to pay for projects as you have unpaid invoices, such as construction or HVAC installation. Then, when clients pay off their invoices, the borrowed amount is returned to the lender.


Builders CAPline

  • Up to 5-Year Terms
  • Fixed or Revolving
  • Property as Collateral

Builders CAPlines provide funds for acquiring real estate, materials, labor, or other expenses for real estate projects. The property in question serves as collateral, and the funds must be paid back on the property sale or within three years of project completion. An important consideration for this option is that there is a 5-year limit, compared to 10 years for the other CAPlines.


Working CAPline

  • Up to 10-Year Terms
  • Revolving
  • Accounts Receivable or Inventory as Collateral

The working CAPline is the most generic and applicable of the SBA’s LOCs. This option provides flexibility in spending, as you can use funds towards virtually any business expense (that grows your business).

However, these loans boast the highest terms of CAPlines, and the interest rates will depend on the collateral you can provide during loan acquisition.


SBA Express Line of Credit

  • Up to 7-year Terms
  • Revolving

SBA express lines of credit are the short and sweet version of CAPlines. You can apply and get approved for LOCs much faster than CAPlines, with terms up to 7 years long. However, express LOCs have more stringent terms and higher interest rates to account for their flexibility.

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Apply for SBA Lines of Credit Today with BitX Funding

Small businesses need funds to grow their businesses adequately. However, many industries are caught in seasonal tides that deplete their resources before they can grow again. These industries require working lines of credit that they can depend on when business is slow and used to grow when the season is busy.

One of the most potent lending institutions for small businesses is the SBA. Currently, the SBA offers several lines of credit options through its CAPline program for virtually any business need. Whether it’s acquiring funds for service contracts, putting a down payment on real estate, or covering wages in the off-season, SBA LOCs provide much-needed security when you require it most.

For more information on small business loans of all kinds, contact BitX Funding by phone, email, or fill out the form below.

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