SBA CONTRACT CAPLine Program
SBA Contract CAPLine Program • Eligibility- An SBA “small business” is one that: • Operated “for profit” • Has a net worth of less than $15 million and • Has annual average 2 year net profit of less than $ 5 million • Meets other criteria per SBA regulations • Maximum SBA loan amount is $5 million at one time (you can have multiple loans) • Maximum SBA guaranty percentage is 85% to $150,000; 75% over $150,000 • Maximum Interest rate – P+2.25% to 12 months; P+2.75% over 12 months • SBA Guaranty fee is .25% of guaranteed loan amount for loans up to 12 months; per SBA schedule for loans longer than 12 months • Interest only due during contract period unless progress payments outlined
Contract CAPLine - Eligibility • Applicant must qualify under Standard 7(a) Loan Requirements and: - Show history of profitable performance on similar contracts - Show ability to bid, accurately project costs and perform the specific work required by the contract. - Have financial capacity and technical expertise to complete contracts profitably and on time
Contract CAPLines – Use Of Proceeds • Proceeds can be used to finance all costs related to the specific contract, excluding profit. • Contract CAPLine proceeds may NOT be used for: - permanent working capital - to acquire fixed assets - to pay delinquent taxes - to refinance existing debt - to finance a contract in which significant performance has already begun - for change of ownership - floor plan financing - to cover any mark-up or profit - to finance the performance of another contract or sub-contract
Contract CAPLine Program - Collateral • Assignment Of Contract Proceeds 1 st Lien Position on Contract and Proceeds required, taken via UCC • Financing Statement & Security Agmt - Contracting authority notified in writing of the assignment and agrees to assignment in writing - Assignment must be in place prior to first disbursement - Assignment to allow Lender to receive payments from a 3 rd Party; written acknowledgement required. - No additional collateral is required when Contract Proceeds are pledged - Progress payments can be received and applied
Contract CAPLines – Exception to Assignment of Proceeds • Assignment of proceeds NOT required if at least TWO of the following conditions are met. -The term of the contract being financed is 12 months or less - A successful track record exists between the borrower and the contracting authority - Financial analysis shows a Debt Service Coverage ratio that exceeds 1:1 - All contract proceeds are paid directly to the lender by the contracting authority or third party -There is other available and worthwhile collateral pledged to secure the line
Contract CAPLines – Contracts between Primes & Subs • Prime and Subcontractor Contracts-Eligible if: Lender satisfies the Assignment of Contract Proceeds requirements per SBA’s regulations, AND if at least two of the following conditions are met: • Both the Prime and Subcontractor have favorable credit ratings (e.g., Builders Industry Credit Association “BICA”) • There is a successful track record between the Prime and Sub • There is a successful track record between the Prime and the Contracting Authority • The Contract CAPLine amount is less than $300,000 • The term of the contract is 12 months or less • Financial analysis shows that the applicant has better than 1:1 Debt Service Coverage historically (most recent FYE and current period) • There is other worthwhile collateral available
Contract CAPLines – Contracts with Performance Bonds • Contracts with Performance Bonds may be eligible for financing, provided the lender perfects a UCC security interest in the contract proceeds - SBA recognizes the following may be necessary when a contract requires a Surety’s performance bond • The lender’s UCC security interest in the contract proceeds will be subordinate to the cost reimbursement claim of the Surety • The Surety may require a funds control facility The funds control facility would disburse directly to suppliers and laborers The contracting authority remits proceeds directly to the funds control facility, which remits to lender
PURCHASING ORDER FINANCING • Purchase Orders may be substituted for a formal contract, provided the following conditions exist: -The purchase order is issued to the borrower under a Master Agreement: AND -The combination of the PO and the Master Agreement constitute a binding agreement
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