Credit Lines

Need flexible financing to manage cash flow, seize opportunities, or cover unexpected expenses for your small business or franchise? A credit line provides revolving access to funds, allowing you to borrow as needed up to a set limit. Unlike traditional loans, credit lines offer ongoing flexibility to support your business’s dynamic needs. LoanBox streamlines the process, connecting you with lenders offering SBA and conventional credit lines. Explore how credit lines work, their SBA and bank-specific features, and how LoanBox empowers your financial agility with detailed insights to guide your decision.

What Is a Credit Line?

A credit line, or line of credit, is a revolving loan that lets businesses borrow funds up to a pre-approved limit, repay, and borrow again, providing flexible access to capital.

Purpose: Finance short-term needs like working capital, inventory, payroll, seasonal expenses, or project costs, with the ability to draw funds as needed.

Use Cases:

  • Cover payroll during a slow month.

  • Purchase inventory for a seasonal sales surge.

  • Fund a short-term marketing campaign.

Typical Bank Credit Lines

Conventional bank credit lines offer a fast, flexible financing option, particularly for businesses with established banking relationships, though they often have higher rates and stricter terms than SBA CAPLines.

How Bank Lines Work:

Structure: Revolving credit with a set limit (e.g., $10,000–$1 million), allowing draws as needed. Interest is charged only on drawn amounts, with repayment terms of 1–5 years or ongoing with annual reviews.

Draw and Repayment: Access funds via online banking, checks, or transfers, repay principal and interest monthly, and reuse the line. Some lines have draw periods (e.g., 1–2 years) followed by repayment-only periods.

Fees: Annual fees ($100–$1,000), draw fees (0.5–2%), or inactivity fees may apply. Early termination penalties are common if the line is closed before maturity.

For Existing Bank Customers:

Relationship Advantage: Banks prioritize customers with deposit accounts, loans, or merchant services, offering faster approvals (1–2 weeks), lower rates (e.g., 0.5–1% below standard), or higher limits. For example, a customer with $500,000 in annual deposits might secure a $200,000 line at 8–9% vs. 9–10% for a new client.

Approval Process: Banks evaluate your PFS, business financials (e.g., 1–2 years of revenue), credit score (FICO 680+), and relationship strength. Existing customers may submit fewer documents (e.g., recent account statements vs. full financials).

Collateral and Guaranties: Secured lines require collateral (e.g., receivables, equipment, real estate), while unsecured lines (for strong customers) rely on personal guaranties. Relationship-based approvals may reduce collateral needs.

SBA Aspects

SBA 7(a) CAPLines and other 7(a) credit lines are specialized revolving loans designed to meet short-term and cyclical financing needs, offering competitive rates and terms, per SOP 50 10 8. These options provide flexibility for businesses needing ongoing or structured credit access.

SBA 7(a) Credit Line with 10-Year Term and 3-Year Revolving Period:

Structure: A specialized 7(a) Working Capital CAPLine with a 10-year total term, where the initial revolving period—up to 3 years (typically 1–3 years, as negotiated with the lender per SOP 50 10 8)—allows you to borrow, repay, and reuse funds up to the approved limit for short-term needs like working capital or inventory. At the end of the revolving period, any outstanding balance converts to a fixed-term loan, amortized over the remaining term (up to 7 years) with fixed monthly payments of principal and interest. This structure requires a Borrowing Base Certificate to track eligible accounts receivable and inventory, ensuring draws align with collateral value.

Other Types of SBA CAPLines:

  • Working Capital CAPLine: Funds short-term working capital (e.g., payroll, inventory) with revolving access up to $5 million, terms up to 7 years.

  • Seasonal CAPLine: Finances seasonal expenses (e.g., holiday inventory), with similar limits, terms, and rates.

  • Builder’s CAPLine: Supports construction or renovation, funding direct costs, with terms up to 5 years.

  • Contract CAPLine: Finances specific contracts or purchase orders, covering labor and materials, with terms tied to contract duration.

Offers up to $5 million, with interest rates of 9.5–11.5% (prime rate of 7.5% + 1–3% spread). Lenders set the revolving period based on your cash flow cycles, requiring monthly or quarterly borrowing base reports to monitor collateral (e.g., 75–85% advance on receivables, 50–65% on inventory). Conversion to a term loan involves updating the note to reflect fixed payments, subject to lender approval and SBA compliance.

  • Example: Draw $200,000 over 3 years for payroll and inventory, repaying $50,000. At year 3, a $150,000 balance converts to a 7-year term loan at 9.5%, with fixed payments of ~$2,550/month (principal + interest).

  • Use Cases: Ideal for businesses with cyclical cash flows needing revolving credit initially, then structured payments for stability, such as retailers managing seasonal inventory or contractors funding short-term projects.

Eligibility:

  • Business Requirements: Must be for-profit, U.S.-based, meet SBA size standards (e.g., revenue or employee limits by industry), and have 51%+ U.S. citizen or lawful permanent resident ownership.

  • Credit Elsewhere Test: Prove you can’t secure financing on reasonable terms without SBA support (e.g., provide lender denials or high-rate offers).

  • Financial Health: Demonstrate a DSCR of 1.15+ (lenders may require 1.25–1.50), SBSS 155+ for lines under $500,000, or FICO 650–680 for larger lines.