CAPlines: Short-Term Financing

SBA loan guarantee programs traditionally focused upon the difficulties that small businesses have in obtaining long-term financing. In order to help these businesses with the recurring, cyclical short-term capital shortages that they often face, the SBA broadened and consolidated a number of its prior loan guarantee programs into a new umbrella program called CAPlines.

CAPlines provides SBA loan guarantees on working capital loans and lines of credit. Repayment is tied to the business's cash cycle, rather than an arbitrary time schedule. A cash cycle is the time period between the business's acquisition of inventory or service contract and the business's receipt of payment for the sale of the good or service.

Assume a small business builder needs working capital to buy materials for a specific construction project. A short-term commercial loan might require periodic payments that have no relationship to the timing of the cash payments he anticipates on his project. A CAPlines credit line could allow him to make his purchases and the repayment would be scheduled to coincide with the payments he receives on the specific project.

CAPlines loan guarantees can be obtained for seasonal needs, specific contracts, building contractor's needs, or for general business purposes (e.g., operating capital, inventory purchasing, and consolidation of short-term debt) if the line is adequately secured by accounts receivable and/or inventory. Depending upon the borrower's needs, the loans can be structured as a straight line of credit (similar to a term loan, with 1-5 year maturity), a revolving line of credit, a fixed line of credit (usually very short-term with repayment tied to a specific contract or project) or a seasonal line (a short-term line, perhaps as short as 30 day, to allow a business operating capital for a forthcoming seasonal upswing). Only one line of credit can be outstanding at any time.

More detailed CAPlines information can be found on the SBA site at this page.

The following are the major CAPline programs:

• asset-based lines of credit
• seasonal lines of credit
• contract lines of credit
• builders' lines of credit