The CAPLines loan program by SBA for small business

The CAPLines loan program is designed to help small businesses meet short-term and seasonal working-capital needs. The Export Working Capital Program serves the working-capital needs of small-business exporters. The International Trade Loan can be used by small businesses that either are preparing to engage or are engaged in international trade or have been adversely affected by competition from imports. The DELTA (Defense Loan and Technical Assistance) program provides financial and technical assistance to small-business defense contractors adversely affected by defense cuts to help them diversify into commercial markets.

Of the special 7(a) loan programs, the CAPLines program has the broadest applicability across the range of small businesses. The five types of available loans are seasonal lines, contract lines, builder’s lines, standard asset-based lines, and small asset-based lines. A seasonal line is a revolving or non revolving line of credit that advances funds against inventory and receivables to balance seasonal sales fluctuations. A contract line is a revolving or non revolving line of credit that funds the direct labor and material costs involved in performing assignable contracts. A builder’s line is a revolving or non revolving line of credit that funds the direct labor and material costs associated with constructing or renovating commercial or residential buildings with the building project normally serving as collateral for the loan.

The standard asset-based line is generally used by businesses that provide credit to other businesses. These businesses continually draw on the asset-based revolving line based on their existing assets (such as accounts receivable) and repay the asset-based lender as these assets are converted into cash. The standard asset-based line normally requires continual monitoring and servicing of the collateral (usually accounts receivable of the business).

Under all of the four CAPLine programs described above, a borrower may borrow up to $1 million with the SBA guaranteeing 75 percent. The fifth CAPLine program, the small asset-based line, operates like the standard asset-based line except that some servicing requirements are waived, but the maximum loan is $500,000. All five types of CAPLines can have a maturity of up to five years and an interest rate up to 2.25 percent over prime. The actual maturity and interest rate are negotiated with the lender. The collateral is usually the asset being financed.

Under the Export Working Capital Program (EWCP), a small-business exporter may borrow up to $5 million to fund short-term working-capital needs, with the SBA guaranteeing 90 percent. EWCP loan maturities typically either match a single transaction cycle or support a line of credit for 12 months. The EWCP uses a one-page application form and streamlined documentation. Turnaround is usually within ten days. Interest rates and fees are fully negotiable between the lender and the borrower.

Small businesses involved in international trade or adversely affected by imports can get an SBA guarantee for as much as $5 million in a combined working-capital and fixed-asset loan under the International Trade Loan Program. Loans for working capital may be made for up to three years. Loans for facilities and equipment, to purchase land and buildings, building new facilities, renovating, improving, and expanding existing facilities, and purchasing and reconditioning machinery, equipment, and fixtures, may be made for up to 25 years. The facilities and equipment must be located in the United States, its territories, and possessions.

The DELTA program applies only to a few firms that meet the 7(a) eligibility requirements. To qualify for the DELTA program, the small business must have derived at least 25 percent of its total revenue from Department of Defense contracts, defense-related contract with the Department of Energy or subcontracts in support of defense related prime contracts. In addition, it must meet at least one of three criteria:

  1. Be adversely affected by reduced defense spending and use the loan to retain jobs of defense workers.
  2. Be located in an adversely impacted community and create new economic activity and jobs.
  3. Use the loan to diversify operations while remaining available as a defense contractor.

The principal benefit of the DELTA program is that the maximum 7(a) loan is increased to $5 million.

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