What is an SBA Line of Credit? 

Disclaimer:
Information
in
the
business
line
of
credit
articles
is
provided
for
general
information
only,
does
not
constitute
financial
advice,
and
does
not
necessarily
describe
Biz2Credit
commercial
financing
products.
In
fact,
information
in
the
business
line
of
credit
articles
often
covers
financial
products
that
Biz2Credit
does
not
currently
offer.

Small
businesses
have
many
funding
options
available
to
them,
from
conventional
loans
to
revenue-based
financing
to
their
owners’
personal
assets.
One
of
the
leading

business
loan
types
are
those
backed
by
the
United
States
Small
Business
Administration
(SBA).
SBA
loan
programs
are
partially
guaranteed
by
the
SBA,
meaning
that,
should
a
borrower
default
on
a
loan,
the
government
will
reimburse
a
lender
for
a
significant
percentage
of
the
loan
amount.
This
protects
lenders
and
can
help
businesses
gain
access
to
capital.
In
2023,
the
SBA
provided
more
than
$33
billion
in
loans
to
more
than
57,000
small
businesses.

The
SBA’s
7(a)
loan
program
is
the
most
popular,
but
it’s
a
conventional

term
loan
option
that
may
not
be
right
for
all
businesses.
Sometimes,
small
business
owners
just
need
quick
access
to
working
capital
without
taking
on
long-term
debt.
That’s
why
many
opt
for
more
flexible
financing
solutions
like

business
lines
of
credit,
and
why
the
SBA
has
recently
announced
the
7(a)
Working
Capital
Pilot
program.

Key
Takeaways:

The
SBA’s
7(a)
Working
Capital
Pilot
program
offers
government-backed
lines
of
credit
of
up
to
$5
million
for
small
businesses.

SBA
lines
of
credit
offer
faster,
more
flexible
access
to
cash
to
fund
day-to-day
operations
and
larger
scope
business
initiatives.

SBA
lines
of
credit
carry
an
annual
fee
and
maximum

interest
rates
of
the
prime
rate
plus
3%
to
6.5%.

In
this
article

• What
  is
  an
  SBA
  Line
  of
  Credit?
• What’s
  the
  difference
  between
  SBA
  Lines
  of
  Credit
  and
  SBA
  Loans?
• Types
  of
  SBA
  Lines
  of
  Credit
• Comparing
  Types
  of
  SBA
  Lines
  of
  Credit
• How
  to
  Apply
  for
  an
  SBA
  Line
  of
  Credit
• Conclusion

What
is
an
SBA
Line
of
Credit?

The
7(a)
Working
Capital
Pilot
program
is
the
SBA’s
newest
service,
and
it
functions
similarly
to
a
traditional
business
line
of
credit.
Once
a
business
is
approved
for
a
line
of
credit
amount,
it
may
draw
upon
the
credit
line
whenever
it
needs
an
influx
of
cash.
Interest
is
only
charged
on
the
drawn-upon
funds.
These
monitored
lines
of
credit
operate
within
the
7(a)
loan
program
and
provide
small
businesses
with
fast,
flexible
funding.

While
“working
capital”
is
in
the
program
name,
SBA
lines
of
credit
can
be
used
for
a
wide
variety
of
business
purchases,
including:

• Acquiring,
  refinancing,
  or
  improving
  real
  estate
  and
  buildings
• Short-
  and
  long-term
  working
  capital
• Refinancing
  current
  business
  debt
• Purchasing
  and
  installation
  of
  machinery
  and
  equipment,
  including
  AI-related
  expenses
• Purchasing
  furniture,
  fixtures,
  and
  supplies
• Changes
  of
  ownership
  (complete
  or
  partial)
• Multiple
  purpose
  loans,
  including
  any
  of
  the
  above

Because
of
this
flexibility
and
the
fact
that
you
only
pay
interest
on
what
you
use,
lines
of
credit
are
an
excellent
resource
for
businesses
with
short-term
goals
with
quick
returns.
For
instance,
launching
a
new
product,
advertising
in
a
new
market,
or
increasing
production
volume
to
meet
a
surge
in
demand
are
all
good
uses
of
an
SBA
line
of
credit.

What’s
the
difference
between
SBA
Lines
of
Credit
and
SBA
Loans?

Both
SBA
lines
of
credit
and
SBA
loans
are

types
of
financing
for
small
businesses
that
are
backed
by
the
SBA.
Since
they
significantly
lower
the
risk
to
a
borrower,
both
tend
to
have
stricter
qualification
requirements
than
conventional
loans.
However,
there
are
a
few
key
differences.

There
are
several
types
of
SBA
loans
designed
for
different
business
purposes
and
goals,
but
ultimately
they
are
all
term
loans.
This
means
that
a
lender
provides
a
lump
sum
payment
to
a
borrower
and
the
borrower
must
repay
the
loan
principal,
plus
interest,
over
a
negotiated
period
of
time.
These
lump
sum
payments
are
best
for
businesses
that
are
looking
to
create
long-term,
sustainable
growth
by
investing
in
key
foundations
of
the
business.

An
SBA
line
of
credit
works
a
little
differently.
While
a
borrower
may
be
approved
for
a
$50,000
line
of
credit,
they
don’t
actually
receive
all
of
that
money
in
a
lump
sum.
Rather,
they
may
draw
on
this
revolving
line
of
credit
and
repay
the
money
as
they
go.
For
instance,
if
a
small
business
owner
draws
$10,000
to
pay
for
an
advertising
campaign
in
a
new
market,
she
would
be
charged
interest
on
that
$10,000
until
she
paid
the
money
back.
Likewise,
until
the
initial
withdrawal
is
paid
back,
she
would
only
be
able
to
draw
an
additional
$40,000.
Once
the
$10,000
is
paid
back,
she
can
access
the
full
$50,000
again.
This
flexible
funding
makes
lines
of
credit
great
for
businesses
that
need
working
capital
to
complete
short-term
goals
without
taking
on
long-term
debt.

Types
of
SBA
Lines
of
Credit

While
the
7(a)
Working
Capital
Pilot
program
is
new,
the
SBA
has
a
few
existing
lines
of
credit
programs
already.
The
SBA
Express
Line
of
Credit
and
CapLines
programs
cater
to
specific
types
of
businesses
that
can
benefit
from
an
infusion
of
flexible
working
capital.
Both
can
be
revolving
or
non-revolving,
meaning
they
can
function
as
more
traditional
loans
with
a
term
repayment
plan,
or
as
lines
of
credit
that
are
more
pay
as
you
go.

• 
  7(a)
  Working
  Capital:
  The
  newest
  line
  of
  credit
  program
  set
  within
  the
  7(a)
  loan
  program,
  these
  flexible
  lines
  of
  credit
  may
  be
  approved
  for
  up
  to
  $5
  million
  and
  used
  for
  a
  wide
  range
  of
  business
  purposes.
• 
  SBA
  Express
  Line
  of
  Credit:
  Businesses
  with
  a
  more
  dire
  need
  for
  funding
  may
  get
  approved
  for
  an
  Express
  Line
  of
  Credit
  of
  up
  to
  $500,000
  within
  36
  hours.
  Turnaround
  time
  to
  actually
  access
  the
  money
  will
  depend
  on
  the
  lender.
• 
  Seasonal
  CAPLine:
  Businesses
  that
  earn
  most
  of
  their
  revenue
  during
  a
  specific
  season
  may
  use
  Seasonal
  CAPLines
  to
  finance
  increases
  of
  accounts
  receivable,
  inventory,
  and
  labor
  costs.
• 
  Contract
  CAPLine:
  Designed
  for
  invoice-
  and
  contract-based
  businesses,
  Contract
  CAPLines
  help
  finance
  costs
  associated
  with
  one
  or
  more
  specific
  contracts.
• 
  Builders
  CAPLine:
  General
  contractors
  and
  other
  construction-related
  businesses
  may
  use
  a
  Builders
  CAPLine
  to
  finance
  construction
  or
  rehabilitation
  of
  a
  residential
  or
  commercial
  property
  for
  resale.
• 
  Working
  CAPLine:
  Most
  similar
  to
  the
  7(a)
  line
  of
  credit,
  Working
  CAPLines
  are
  asset-based
  lines
  of
  credit
  designed
  for
  businesses
  and
  business
  owners
  with
  bad
  credit
  who
  may
  not
  be
  able
  to
  otherwise
  get
  approved.
  It
  requires
  continual
  servicing
  and
  monitoring
  of
  collateral.

Comparing
Types
of
SBA
Lines
of
Credit

Type of SBA Line of Credit	Common Uses	Max Credit Limit Available	Repayment Timeline
7(a) Working Capital	Short-term growth initiatives	$5 million	Up to 5 years
SBA Express Line of Credit	Emergency management, taking advantage of a time-sensitive business opportunity	$500,000	Up to 7 years
Seasonal CAPLine	Managing increased costs during seasonal rushes	$5 million	Up to 10 years
Contract CAPLine	Funding costs associated with specific contracts	$5 million	Up to 10 years
Builders CAPLine	Funding construction or rehabilitation of properties	$5 million	Up to 10 years
Working CAPLine	Gaining working capital for business owners or businesses with bad credit	$5 million	Up to 10 years

 

Do
I
Qualify
for
an
SBA
Line
of
Credit?

As
with
all
SBA
7(a)
loans,
qualifying
for
a
7(a)

Working
Capital
line
of
credit
is
more
difficult
than
qualifying
for
business
lines
of
credit
not
backed
by
the
SBA.
The
SBA’s
primary
eligibility
requirements
require
a
business
to:

• Operate
  an
  eligible
  business
  for
  profit
  in
  the
  U.S.
• Be
  small
  under
  SBA
  Size
  Requirements
• Unable
  to
  obtain
  the
  desired
  credit
  on
  reasonable
  terms
  from
  non-Federal,
  non-State,
  and
  non-local
  government
  sources
• 12
  full
  months
  of
  operations
  prior
  to
  filing
  application
• If
  supporting
  an
  acquisition,
  acquiring
  borrower
  must
  have
  a
  history
  of
  12
  full
  months
  of
  operations
  prior
  to
  filing
  application
• Businesses
  must:
  • Produce
    timely
    and
    accurate
    financial
    statements,
    accounts
    receivable
    and
    accounts
    payable
    agings,
    and
    inventory
    reports.
  • Provide
    annual
    financial
    statements
    to
    lender
    and
    submit
    to
    a
    full
    credit
    analysis
    as
    part
    of
    any
    renewal.

There
are
also
a
range
of
financial
qualification
requirements,
including:

• Business
  owner’s
  personal
  credit
  score
  above
  680
  preferred
  (640
  minimum)
• Ability
  to
  provide
  collateral
  for
  requests
  above
  $25,000
• No
  recent
  recent
  bankruptcies,
  foreclosures,
  or
  tax
  liens

Qualifying
for
CAPLines,
however,
is
significantly
easier.
There
is
no
minimum
credit
score
or
collateral
requirement,
although
the
better
your
business’s
financial
profile,
the
more
likely
you
are
to
qualify
for
a
higher
loan
amount.
The
only
primary
qualification
requirements
are
that
you
operate
an
eligible
business
in
the
United
States
that
is
defined
as
small
under
SBA
size
requirements.

How
to
Apply
for
an
SBA
Line
of
Credit

Applying
for
an
SBA
line
of
credit
may
be
a
little
more
complicated
than
applying
for
a
conventional
business
line
of
credit,
but
not
much.
The
application
process
will
depend
on
the
lender,
the
amount
you’re
looking
for,
and
what
kind
of
documentation
the
lender
needs
in
addition
to
the
SBA.
Generally,
the
process
looks
like
this:

1. 
   Determine
   your
   needs:
   Before
   you
   even
   get
   into
   the
   research
   phase,
   figure
   out
   how
   much
   you’ll
   actually
   need
   from
   a
   revolving
   line
   of
   credit.
   You
   want
   flexible
   capital
   that
   will
   help
   your
   business
   grow,
   but
   you
   don’t
   want
   to
   draw
   on
   it
   so
   heavily
   that
   you
   can’t
   pay
   it
   back
   in
   a
   timely
   manner.
2. 
   Shop
   lenders:
   There
   are
   many
   SBA-approved
   lenders
   out
   there,
   so
   it’s
   up
   to
   you
   to
   find
   a
   bank,
   credit
   union,
   or
   online
   lender
   that
   offers
   competitive
   rates
   and
   terms
   that
   will
   work
   for
   your
   business.
3. 
   Gather
   your
   paperwork:
   You’ll
   need
   to
   agree
   to
   a
   credit
   check,
   plus
   provide
   financial
   documentation
   like
   annual
   reports,
   income
   statements,
   profit
   and
   loss
   statements,
   as
   well
   as
   basic
   information
   like
   the
   company
   name
   and
   tax
   ID.
4. 
   Apply:
   Most
   lenders
   offer
   online
   application
   processes,
   even
   for
   SBA
   loans.
   Depending
   on
   the
   lender,
   you
   may
   be
   able
   to
   do
   the
   entire
   application
   online
   or
   have
   to
   go
   in-person
   to
   meet
   with
   a
   loan
   servicer.
5. 
   Wait
   for
   approval:
   Finally,
   you’ll
   just
   have
   to
   wait
   for
   approval
   by
   the
   SBA,
   and
   then
   for
   the
   lender
   to
   underwrite
   the
   line
   of
   credit
   before
   giving
   you
   access
   to
   funds.

Conclusion

A
line
of
credit
gives
businesses
quick
access
to
funds
when
they
need
it,
without
the
burden
of
interest
charges
on
long-term
debt.
The
SBA
offers
several
types
of
lines
of
credit,
including
the
new
7(a)
Working
Capital
Pilot
program.
Each
program
offers
advantages
for
different
types
of
businesses
and
provides
cash
infusions
when
needed
to
help
entrepreneurs
navigate
tough
times
and
take
advantage
of
business
opportunities.

FAQs

What
is
the
SBA?

The
United
States
Small
Business
Administration
(SBA)
is
a
federal
agency
that
aims
to
help
small
businesses
grow
and
succeed.
Its
loan
programs
partially
guarantee
loan
amounts,
lessening
the
risk
to
lenders,
making
them
more
likely
to
approve

small
business
loans.

What
is
a
line
of
credit?

A
line
of
credit
is
a
cross
between
a
loan
and
a
credit
card.
A
lender
approves
you
for
a
maximum
credit
limit,
which
you
can
draw
upon
as
cash
when
you
need
it.
You
don’t
pay
interest
on
the
maximum
credit
amount,
you
only
pay
interest
on
the
amount
that
you
use.
As
long
as
you
pay
back
the
credit,
you
can
access
the
full
amount
whenever
you
need.

How
can
you
use
a
line
of
credit?

Small
business
owners
can
use
a
line
of
credit
however
they
like.
When
you
draw
on
the
credit
amount,
you’ll
get
a
cash
deposit
to
your
linked
business
bank
account
and
may
use
that
money
for
whatever
business
purpose
you
need.

What
lines
of
credit
does
the
SBA
offer?

The
SBA
offers
several
types
of
lines
of
credit.
The
CAPLines
program
offers
lines
of
credit
to
manage
specific
business
needs:
Seasonal,
Builders,
Contract,
and
Working
Capital.
The
SBA
also
offers
an
Express
Line
of
Credit
for
emergency
purposes
and
a
Working
Capital
Pilot
program
within
the
7(a)
loan
program.

Frequent
searches
leading
to
this
page

sba
credit
line,
sba
revolving
line
of
credit,
sba
loc,
sba
line
of
credit
pilot
program,
business
loans
no
credit
check,
new
business
line
of
credit