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CAPLines
SBA.gov has lots of valuable information as it relates to CAPLines. This loan program assists with immediate and seasonal cash flow needs. The key points laid out are as follows.
The first loan type is a Seasonal Line. The funds from this loan can only be used to cover cost of seasonal inventory and to manage increases in accounts receivable (money owed by clients). In specific instances you may even use this money to cover increased labor costs. This particular type of loan may be a revolving loan meaning that you can continue to reuse the line of credit according to the terms set in the loan or non-revolving, which is a one time use of funds.
The second loan type is a Contract Line. This line provides the money to pay the workers and the money to pay for the material necessary to complete a contract. This loan may be a revolving or non-revolving loan.
The third loan type is a Builders Line. This loan is for small general contractors and builders who are building or renovating commercial or residential buildings. The money from the loan is used to pay the workers and buy materials for the project. The collateral (assets the contractor or builder uses to secure the loan) is the building project. This loan may be revolving or non-revolving.
The fourth loan type is a Standard Asset-Based Line. This can be used for revolving lines over $200,000 to purchase inventory, pay workers, or finance accounts receivable. Repayment is pulled from accounts receivable. Your business can continue to use the line of credit, depending on assets and ability to pay back the lender. These loans require regular servicing and monitoring of collateral and can incur charges. These loans are normally used for businesses that provide credit to its customers.
The fifth loan type is a Small Asset-Based Line. This can be used for a loan up to $200,000. This is similar to a Standard Asset-Based Line of credit. The only difference is that it does not require stricter servicing and monitoring, as long as your business is making the loan payments agreed upon.
Loan Maturities
These five types of loans have a life of (5) years. The time frame may be smaller depending on the business and its needs. The money can be used as needed during the length of the loan to purchase an asset that has a lifespan of five years or less. When buying the assets be sure to leave enough time to pay back the loan before it ends.
Collateral
Any one owning a minimum of 20 percent in the business normally must guarantee the loan or in other words assure that the loan will be paid. The loan application may be rejected if there is not enough collateral. Another reason for rejection is that the collateral is not applicable to the loan request.
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