Audio for Working Capital for New CompanyArticle by Roger Schlueter
There are several Lines of Credit that SBA offers in the SBA 7a Guaranteed Loans. These are the SBA 7(a) Loans CAPLines. There are four types of CAPLines and They are:
1) Working Capital – Unique Eligibility Requirements are: the company must sell on credit and create accounts receivable, not notes receivable.
2) Contract – Unique Eligibility Requirements are: Contract must permit lender to obtain an assignment of proceeds. Some Exceptions may apply (see ch. 7 of this subpart).
3) Seasonal – Unique Eligibility Requirements are: 30-day zero balance each year is required.
4) Builders – Unique Eligibility Requirements are: Borrower must have previous building experience of the same type. Speculative building but with documentation to support likelihood of sale.
On page 85 the SBA’s SOP 50 10 5(E) has a section IV “Various Specialized Programs”, the SOP (Standard Operating Proceedures) this is suppose to be the SBA’s Bible of the rules of SBA Lending. This section has a section entitled “7(a) LOANS CAPLines and gives the Attributes of all four of the CAPLines – Lines of Credit in Detail. There is no mention of any 12 month operations in this description on Pages 86 & 87.
Eligibility Requirements are discussed on page 130 & 131 under Section M. Additional Eligibility Requirements for CAPLines. This section states that a Seasonal CAPLine has to be in business 12 months but does not mention ” in business 12 months in the other CAPLines. The Working Capital CAPLine under M. 4. States that “To be eligible for a Working Capital CAPLine, the applicant must qualify under the standard 7(a) requirements and generate accounts receivable (not notes receivable).”, (top of page 131).
The only mention of 12 months business operation is in the Eligibility Questionnaire. This form is highly recommended that you fill out but is not required for 7a. This form states in the CAPLines Addendum H in the General Requirements for all loans that,
“1. The Applicant has been in business for at least 1 year or developed an adequate track record to assess its short-term working capital needs.” The Key Here is the word ” or “.
Really, I’m not nitpicken but the SBA really needs to update it’s BIBLE so that others may see the light! In short – there will be not Lines of Credit for new businesses. Now, they could reinterpret the SOP or Redo the Eligibility in the future. Small Business deserves a Better Bible of SBA Rules and Eligibility.
Please send any questions or comments to this blog or to roger@rogerschlueter.com or go to the Website at schlueterfinancial.com for additional contact information.