Article by Roger Schlueter, MBA
The SBA CAPline Program is part of the SBA 7(a) Loans Program and many of the rules are exactly as they are for the SBA 7(a) Program. The CAPline is broken up into Four (4) types of CAPlines that are used for Lines of Credit but the use is different and some of the rules are also different. I will explain each below starting with the most used and then will describe the three lesser used CAPlines.
1) The Working Capital CAPlines are a Line of Credit that is based on the companies generated Accounts Receivable (Sales made but the cash is not collected). The use is to finance short term Working Capital Needs of the borrower. The Targeted processing time is 6 days. The Maximum Maturity is – Up to Ten Years. Collateral will be a 1st Lien on Accounts Receivable and Inventory but may take additional Collateral to ensure a 1:1 Collateral Ratio. The rest of the attributes are the same as the SBA 7(a) Program.
2) Contract CAPlines are used to finance all costs associated with specific contract(s), but not Profit. May be revolving. Collateral is an Assignment of the Contract Proceeds. The rest of the attributes are the same as the SBA 7(a) Program.
3) Seasonal CAPlines are used to finance Seasonal Working Capital Needs of the borrower. They can be revolving. A 30 day zero balance each year is required. Collateral is a First Lien on Seasonal Inventory and Receivables. The rest of the attributes are the same as the SBA 7(a) Program.
4) Buildings CAPlines are used to finance the Direct Costs associated with the Building of a Commercial or Residential Building. Borrower must have Previous Building Experience of the same type. Speculative Building is allowed with Documentation to Support Likelihood of Sale. Collateral is No Less than a Second Lien on the Real Estate Project. The maximum Maturity is 5 years. The rest of the attributes are the same as the SBA 7(a) Program.
The following attributes are the same as the SBA 7(a) Program:
1) Maximum Loan Amount – Limited to $5,000,000 to one borrower.
2) Percent of Bank Guarantee – The Guarantee is 85% of loans $150,000 or less and 75% of
loans over $150,000
3) Interest Rate – Maximum Interest Rate is Prime + 2.25% for loans with maturities under 7 years. Prime + 2.75% for loans with maturities over 7 years. Rates can be 1% higher if the loan amount is between $25,000 and $50,000. Rates can be 2% higher if the loan amount is $25,000 or
less.
4) SBA Guarantee Fees – Maturity of 12 months or less the fee is 0.25%
Maturity over 12 months:
loan amount of $150,000 or less is 2.0%
loan amount of $150,001 to $700,000 is 3%
loan amount of $700,001 to $5,000,000 is 3.5% up to $1 million PLUS 3.75% of portion over $1 million.
Banks have a problem with making a Line of Credit for more than one year at a time. Thus the program is under used. The way to approach the bank is to make the loan for one year and then extend the loan toward the end of the maturity. The borrower will pay the guarantee fee of 0.25% the first year and if extended into year 2 the borrower will pay the remaining guarantee fee for the difference of the two maturities or 0.25% plus the 1.75%. if the loan is $150,000 or less. The Guarantee Fee is raised to whatever the Guarantee Fee would have been for a loan over 12 months with the that particular loan amount, and the borrower will pay the difference in that Guarantee Fee.
Please call or Email me with any questions or comments. Contact info and other information is located on my webpage at www.schlueterfinancial.com or Email me directly at roger@rogerschlueter.com