What is the SBA line of credit?
Key takeaways
SBA CAPLines are a type of SBA 7(a) loan that offers flexible financing options for small businesses
SBA lines of credit include CAPLines, Express loans and Export Express loans
Each SBA line of credit caters to different business needs
Small businesses often face financial challenges that require flexible and reliable funding solutions. Through its 7(a) loan program, the SBA offers different lines of credit tailored to diverse business requirements. Since uses for a business line of credit include managing short-term working capital, covering seasonal fluctuations, funding specific projects and contracts and more, it could be the ideal business financing option.
We’ll take a deeper look at SBA lines of credit and how to apply for one.
What is an SBA line of credit?
An SBA line of credit is a financial tool offered under the 7(a) loan program. It’s designed to provide small businesses with ongoing access to funds to cover various expenses.
One of the benefits of a line of credit is its flexibility. Businesses can make draws on their lines of credit as needed versus receiving the entire loan amount upfront. Business lines of credit are often revolving, similar to a business credit card. This means the line of credit resets as businesses repay the credit line, allowing them to continually borrow up to their credit limit.
SBA lines of credit can either be revolving or non-revolving. A non-revolving line of credit means the credit line won’t replenish as the business repays what it has spent — similar to traditional term loans.
Types of SBA business lines of credit
SBA line of credit type | Description | Repayment terms | Amount |
|---|---|---|---|
Seasonal CAPLines | Covers seasonal fluctuations | Up to 10 years | Up to $5 million |
Contract CAPLines | Covers contractors with specific project needs | Up to 10 years | Up to $5 million |
Builders CAPLines | Covers construction and rehabilitation projects for construction businesses | 60 months plus estimated project completion | Up to $5 million |
Working Capital CAPLines | Covers general working capital needs | Up to 10 years | Up to $5 million |
SBA Express | Offers quick access to smaller loan amounts | Up to 7 years | Up to $500,000 |
Export Express | Helps businesses develop export side of their business | Up to 7 years | Up to $500,000 |
Export Working Capital | Provides additional working capital for businesses that have export sales | 36 months or less | Up to $500,000 |
SBA line of credit interest rates
SBA loan rates are competitive and offer favorable terms for small businesses, which can translate to major savings on the cost of borrowing.
Interest rates for all 7(a) loans vary but are generally reasonable. Variable rates range from 11.50 percent for amounts over $350,000 to 15.00 percent for loans of $50,000 or less. For fixed-rate 7(a) loans, maximum rates range from 13.50 percent for amounts over $250,000 to 16.50 percent for loans of $25,000 or less.
Comparatively lower rates make SBA financing an attractive option for businesses, especially when compared to other lenders. Where you get a business line of credit impacts your rate, but average business line of credit rates for non-SBA lenders falls between 8 percent and 60 percent.
Note that in addition to interest, the SBA imposes a guarantee fee, ranging from 0.00 percent to 3.75 percent of the guaranteed loan portion. Individual lenders may also charge additional fees as long as they comply with SBA guidelines.
How to apply for an SBA line of credit
To qualify for an SBA line of credit, a business must meet the SBA’s definition of small business and exhibit the ability to repay the loan. Additionally, the applicant must be an owner with equity in the business.
Applying for an SBA line of credit involves several steps:
Gathering essential documents like a business plan, financial statements and SBA forms.
Choosing a lender.
Submitting your application. Keep in mind SBA loan approval times depend on your loan type, with the fastest approval time of 36 hours for Express loans and the longest being up to 90 days for other loans.
Once approved, the disbursement process can take from seven days to 90 days, with most businesses receiving funds within seven to 14 days of approval.
The application process can vary depending on the lender, so communicate directly with your lender to confirm specific requirements and avoid being denied an SBA loan.
Bottom line
Small businesses seeking flexible financing may benefit from an SBA line of credit. The option to draw funds as needed, coupled with lower interest rates and longer repayment terms, make business lines of credit easy to manage and affordable.
However, businesses concerned with their odds of approval for an SBA line of credit can consider other types of easy business loans.
Frequently asked questions
What are SBA CAPLines?
SBA CAPLines are lines of credit designed to meet specific business needs, including seasonal fluctuations, construction and general working capital.
What is the minimum credit score for an SBA line of credit?
A minimum credit score isn’t required for an SBA line of credit, but a good credit history is needed for approval.
What is the easiest SBA loan to get approved for?
The SBA Express loan offers a streamlined application process and fast decision time, so it is often considered one of the easiest to get approved for.
