Special purpose 7(a) loan programs
The 7(a) loan program is the most flexible of the SBA’s lending programs. Over time, the SBA has developed several variations of the basic 7(a) loan in order to address specific financing needs for particular types of small businesses or to give the lender greater flexibility with the loan’s structure. The general distinguishing feature between these loan types is their use of proceeds. These programs allow the proceeds to be used in ways that are not otherwise permitted in a basic 7(a) loan.
SBAExpress
The SBAExpress loan or line of credit is a flexible smaller loan up to $350,000 that a designated lender can provide to its borrower using mostly their own forms, analysis and procedures to process, structure, service, and disburse this SBA-guaranteed loan. When structured as a term loan the proceeds and maturity are the same as a basic 7(a) loan. When structured as a revolving line of credit, the requirements for the payment of interest and principal are at the discretion of the lender and maturity can’t exceed seven years.
CAPLines
The CAPLines program for loans up to $5 million is designed to help small businesses meet their short-term and cyclical working capital needs. The programs can be used to finance seasonal working capital needs; finance the direct costs of performing certain construction, service and supply contracts, subcontracts, or purchase orders; finance the direct cost associated with commercial and residential construction; or provide general working capital lines of credit. The maturity can be for up to 10 years except for the builders’ CAPLine, which is limited to 36 months after the first structure is completed.
Guaranty percentages are the same as for a basic 7(a) loan.
There are four distinct short term loan programs under the CAPLine umbrella:
1. The Contract Loan Program is used to finance the cost associated with contracts, subcontracts, or purchase orders. Proceeds can be disbursed before the work begins. If used for one contract or subcontract, it is generally not revolving; if used for more than one contract or subcontract at a time, it can be revolving. The loan maturity is usually based on the length of the contract, but no more than 10 years. Contract payments are generally sent directly to the lender but alternative structures are available.
2. The Seasonal Line of Credit Program is used to support buildup of inventory, accounts receivable or labor and materials above normal usage for seasonal inventory. The business must have been in business for a period of 12 months and must have a definite established seasonal pattern. The loan may be used over again after a “clean-up” period of 30 days to finance activity for a new season. These loans also may have a maturity of up to five years. The business may not have another seasonal line of credit outstanding but may have other lines for non-seasonal working capital needs.
3. The Builders Line Program provides financing for small contractors or developers to construct or rehabilitate residential or commercial property. Loan maturity is generally three years but can be extended up to five years, if necessary, to facilitate sale of the property. Proceeds are used solely for direct expenses of acquisition, immediate construction and/or significant rehabilitation of the residential or commercial structures. The purchase of the land can be included if it does not exceed 20% of the loan proceeds. Up to 5% of the proceeds can be used for physical improvements that benefit the property.
4. The Working Capital Line Program is a revolving line of credit (up to $5 million) that provides short term working capital. These lines are generally used by businesses that provide credit to their customers, or whose principle asset is inventory. Disbursements are generally based on the size of a borrower’s accounts receivable and/or inventory. Repayment comes from the collection of accounts receivable or sale of inventory. The specific structure is negotiated with the lender. There may be extra servicing and monitoring of the collateral for which the lender can charge up to 2% annually to the borrower.
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