CAPLines is a family of SBA 7(a) loan programs that provide lines of credit to small businesses for short-term and cyclical working capital needs. The loans are made by participating lenders and partly guaranteed by the US Small Business Administration.
How it works in factoring
The SBA describes several CAPLines types, each tied to a particular cash need:
- Seasonal line: for predictable seasonal increases in receivables, inventory or labor
- Contract line: for the direct costs of performing specific contracts or purchase orders
- Builders line: for small general contractors or builders constructing or renovating property for sale
- Working capital line: an asset-based revolving line secured by receivables and inventory
These address some of the same problems as factoring and purchase order financing: funding labor and materials before customers pay. The difference is that CAPLines are loans from a lender with an SBA guarantee, so approval depends on the borrower's own credit, repayment ability and SBA eligibility rules, along with lender requirements for collateral and personal guarantees.
Compared with factoring, an SBA-backed line may cost less for a business that qualifies, but the application usually takes longer and requires more documentation.
What to check
- Current program limits, terms and fees on the SBA's website, since they can change
- Whether a lender in your area actively offers CAPLines
- How the lender's lien on receivables would affect any future factoring
Some businesses use factoring as a bridge while building the track record needed for bank or SBA financing.