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Business’s cash flow fluctuates from inconsistent sales or seasonal changes which means your business will require additional financing. Financing is needed so that you can afford necessary costs such as rent, equipment, and other business expenses.
You might be eligible for an SBA CAPLine, however it can be hard to qualify for like the other SBA programs. Before you invest time in applying for the CAPLine loan, you should do research and consider the pros and cons of this program.
Keep in mind that the SBA aims to provide you with a fixed or revolving line of credit to help you meet short-term working capital needs.
What is an SBA CAPLine?
An SBA CAPLine is for businesses that are for-profit and conduct business in the United States. You need to be able to prove that you can repay the loan and can be fixed or revolving credit lines that business owners can use for long- or short-term costs.
To qualify, you will also need to verify that you have invested your own money into your business and that have you have been declined from receiving outside financing.
What Are the Pros and Cons of SBA CAPLines?
Pros of SBA CAPLines
Flexible Financing
The main differences between the four types of SBA CAPLines have to do with eligibility requirements and the allowed uses of funds. This makes SBA CAPLines a flexible program that works well for seasonal businesses, builders, contractors, and subcontractors.
There is a more standard line of credit available for any business with short-term working capital needs. Regardless of your business’s industry, there’s a good chance that there’s an SBA CAPLine that’s right for you.
Low Interest Rates
The maximum interest rate is the same as the one for the SBA 7(A) loan. The interest rates fall between 6.75 and 9.25 percent, although the rates depend on the terms and small business loan amount. If you shop around for a business line of credit, you will see most interest rates starting at a low of about 9 percent.
High Credit Limits
This SBA financing product has a high borrowing limit of $5 million which gives you more flexibility to obtain the working capital you need to grow your business. Keep in mind that the SBA will only guarantee your loan up to $4 million.
Cons of SBA CAPLines
Hard to Get Approval
Getting approved can be hard and time-consuming. Even if you have strong credit score and proven track record of business success. The eligibility requirements are the same for SBA CAPLines as they are for a standard 7(a) loan. However, each CAPLine has different eligibility requirements.
Strict Spending Restrictions
Except for the Working Capital Line of Credit, SBA CAPLines have fairly strict spending restrictions. Of course, there are four options, but once you’re tied to one, you can’t use the cash for anything other than the designated use of funds.
Good for Short-Term Needs
The max term for CAPLines falls between five and ten years, regardless of what product you choose. The program will only be right for you if you are seeking a short-term loan. Except for the Working Capital Line of Credit, SBA CAPLines have strict spending restrictions. Of course, there are four options, but once you’re tied to one, you can’t use the cash for anything other than the designated use of funds.
