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How to get an SBA business line of credit

Considering an SBA line of credit? 

  • Lines of credit typically offer revolving credit, meaning the borrower can reuse the credit up to a certain limit.
  • The SBA has four different CAPLines programs offering small business lines of credit.
  • The SBA Express program offers a revolving business line of credit.

When a business has difficulty qualifying for a loan from a traditional bank, where do they turn? Many turn to the U.S. Small Business Administration (SBA), a federal agency that provides support for small businesses and entrepreneurs.

The SBA does not fund loans directly, but guarantees loans offered by participating lenders. The SBA agrees to pay a certain percentage of the loan if the borrower fails to pay it back. This makes lenders more likely to issue loans to borrowers who wouldn’t otherwise qualify for financing.

One loan product that offers tremendous flexibility for business owners is a line of credit. Lines of credit are typically a revolving form of credit (although there are non-revolving credit lines as well). A revolving credit line gives the borrower access to credit, up to a certain limit, that they may use as much or as little of as needed. The credit replenishes as the borrower pays down the balance, and the borrower can reuse the line as often as they like as long as the account remains open.

Non-revolving credit lines are similar, with one exception: after payments are made, the pool of available credit does not reset.

The SBA offers two main types of credit lines: CAPLines and SBA Express Revolving Lines of Credit.

CAPLines

The SBA offers a variety of credit line products called CAPLines. These lines of credit include both revolving and nonrevolving credit lines, and offer business owners short-term financing. The lines are guaranteed for up to $2 million.

There are five programs under the SBA’s CAPLines program:

  1. Seasonal line of credit. These lines of credit support increasing inventory, accounts receivable or labor and materials for seasonal business surges. To qualify, a business must have been in business for 12 months, and must be able to demonstrate a seasonal business pattern.
  2. Contract line of credit. These lines of credit are used to pay for labor and material costs associated with fulfilling contracts. The proceeds may be disbursed before the contracted work begins.
  3. Working capital line of credit. These lines of credit provide up to $5 million of short-term working capital. Disbursements are typically based on the size of the business’s accounts receivable or inventory.
  4. Builder’s line of credit. These lines of credit can be used by small contractors or developers to construct or renovate residential or commercial properties that will be sold to a third party. The proceeds of these credit lines can be used solely for direct expenses of acquisition, immediate construction or significant rehabilitation of the structures. Purchasing land is permissible if the cost is no greater than 20 percent of the loan proceeds. Up to 5 percent of the loan proceeds can be used for community improvements that benefit the entire property.

SBA Express Lines of Credit

Business lines of credit may also be offered as SBA Express loans. SBA Express is a program that features an accelerated SBA review; a response to an application is typically given within 36 hours. SBA Express offers a revolving line of credit, and the SBA guarantees up to 50 percent of the amount of an SBA Express loan.