SBA SOP 50 10 8, B.Ch3.A.1 — Working Capital CAPLines
Verbatim text of SBA SOP 50 10 8 section B.Ch3.A.1 (Working Capital CAPLines), effective 2025-06-01. 6 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, B.Ch3.A.1 — Working Capital CAPLines — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 B.Ch3.A.1
1. Working Capital CAPLines Eligibility To be eligible for a Working Capital CAPLine, the Applicant must generate accounts receivable (not notes receivable), and/or have inventory. Eligible Uses of Proceeds i. Borrowers may only use the loan proceeds for short-term working capital/ operating needs. Proceeds must not be used to pay delinquent withholding taxes or similar funds held in trust (e.g., state or local sales taxes), or for floor plan financing. In the event that Working Capital CAPLine proceeds are used to acquire fixed assets, Lender must refinance the portion of the line used to acquire the fixed asset into an appropriate term facility no later than 90 days after Lender discovers that the line was used to finance a fixed asset. ii. Borrowers may be Exporters engaged in Export Transactions. Loan proceeds may be used for domestic-to-foreign exports, foreign-to-foreign exports, and indirect exports. Note: See Paragraph B. 2 in this Chapter for maximum guaranty amounts and percentages for CAPLines to Exporters, which are different than those for EWCP.
SOP 50 10 8 B.Ch3.A.1.iii
iii. Debt Refinancing under Working Capital CAPLines a) In accordance with 13 CFR § 120.452, a Lender may not use delegated authority to reduce the Lender’s credit exposure to the Applicant. Loans that reduce a Lender’s credit exposure to the Applicant must be processed under non- delegated authority. b) Loan proceeds may not be used to pay a creditor (including the same institution’s debt) in a position to sustain a loss. This includes shifting all or part of a potential loss from the original Lender to the SBA. 13 CFR §§ 120.140(j)(1) and 120.201 c) Proceeds from a Working Capital CAPLine may refinance existing short-term revolving debt under the following conditions: i) The short-term revolving debt must be terminated after it is paid off with the CAPLine; ii) Depending on whether the CAPLine will be disbursed based on a Borrowing Base Certificate (BBC) or not, the Borrower has either a borrowing base or collateral sufficient to support the Working Capital CAPLine plus any other short-term debt that is not being refinanced; iii) If the application includes the refinancing of same-institution short- term revolving debt, and if the Applicant defaults on the SBA- guaranteed Working Capital CAPLine within 90 days of initial disbursement, there will be a presumption that the loan proceeds were used to pay a creditor in a position to sustain a loss causing a shift of all or part of the loss to SBA in violation of 13 CFR § 120.201 and SBA may deny liability on the guaranty; d) If the application includes the refinancing of same-institution, SBA- guaranteed short-term revolving debt, in addition to the requirements of paragraphs 1.b.iii.b) i)-iii) above, the Lender’s exposure to the Applicant will not be reduced; e) Short-term revolving debt reflected on the Applicant’s business balance sheet may be eligible for refinancing if:
SOP 50 10 8 B.Ch3.A.1.iii.i
i) It is reflected on the Applicant’s business tax returns (Schedule C for sole proprietorships) showing the interest expense associated with the debt (if the debt has not been in place long enough to appear on a tax return, the debt must be reflected on interim financial statements and on the Applicant’s debt schedule); and ii) The Applicant certifies that the proceeds from the short-term revolving debt were used exclusively for the Applicant’s business and were not used for any ineligible purpose as set forth in 13 CFR § 120.130. f) The loan should be secured with at least the same collateral and lien priority as the debt that is being refinanced. However: i) When the current balance of the debt being refinanced is considered over collateralized relative to SBA collateral requirements and the SBA loan will remain fully secured, the Lender is not required to take the excess collateral. ii) Substitute collateral may be taken to secure the new loan if it is of comparable value and useful life and is determined to be acceptable by SBA or the Lender under its delegated authority. iv. SBA-guaranteed Working Capital CAPLine loan proceeds may not be used to refinance debt that: a) Is owed to a Small Business Investment Company (SBIC) or a New Markets Venture Capital Company 13 CFR § 120.130(b); b) Was originally used to finance a loan purpose that would have been ineligible for SBA Working Capital CAPLine financing at the time it was originally made unless the condition that would have made the loan ineligible no longer exists; c) Is already on reasonable terms; d) Is short-term revolving debt that is not revolving in accordance with the terms of the note; or e) Is Term debt. v. When refinancing short-term revolving debt with a Working Capital CAPLine, the loan application must include: a) A written analysis that addresses the following issues: i) The reason the debt was incurred; ii) The reason for restructuring the debt (for example, over-obligated or imprudent borrowing); iii) The factor(s) that support that the proposed refinancing will not pay a creditor in a position to sustain a loss; iv) The reason for restructuring the debt (for example, over-obligated or imprudent borrowing)
SOP 50 10 8 B.Ch3.A.1.iii.v
v) How the new loan will improve the financial condition of the Applicant; and b) Supporting documentation for each debt to be refinanced. Lenders are required to: i) For loans processed on a non-delegated basis, submit the following with the application to the LGPC: (a) A copy of the note(s) security agreements, leases, and other documentation evidencing the debt to be refinanced, and an explanation of the terms and conditions of any debt(s) being refinanced. (b) A copy of the transcript of account showing the due dates and when payments were received as part of its analysis and recommendation for the prior 12 months, or the life of the loan whichever is less. (c) A written explanation of any late payments and late charges that have occurred during the last 12 months. (Late payments are defined as any payment made beyond 29 days of the due date.) (d) A BBC with Aging of Receivables and List of Inventory, as necessary. ii) For loans processed under a Lender’s PLP authority, retain copies of the items in subparagraphs i)(a)-(d) in the loan file. vi. The payment of trade payables is not considered to be debt refinancing. 2. Contract CAPLines Eligibility To be eligible for a Contract CAPLine, the Applicant must: i. Be able to demonstrate the ability to operate profitably based upon the prior completion of similar contracts; ii. Possess the overall ability to bid, accurately project costs, and perform the specific type of work required by the contract(s); and
SOP 50 10 8 B.Ch3.A.2.i.iii
iii. Have the financial capacity and technical expertise to complete the contract on time and at a profit. Eligible Uses of Proceeds i. The contractor must use loan proceeds only to finance the costs of one or more specific contracts, including overhead or general and administrative expenses, allocable to the specific contract(s). ii. Contract CAPLine proceeds may not be used: a) For permanent working capital; b) To acquire fixed assets; c) To pay delinquent taxes or similar funds held in trust (directly or indirectly); d) To refinance existing debt; e) To finance a contract in which significant performance has already begun; f) To finance a change of ownership; g) For floor plan financing; or h) To cover any mark-up or profit. Advances of loan proceeds financing performance of one contract or sub-contract under a master agreement may not be used to finance the performance of another contract or sub-contract. Progress payments or proceeds received in the performance of a contract or sub- contract financed with this line must not be applied in repayment of a different contract or sub-contract. Funding and payment applications must be accounted for in conjunction with the specific contract or sub-contract to which they relate. A single Contract CAPLine may be used to fund a single or multiple contracts. Once the overall line amount has been approved by SBA, the lender may advance against additional contracts without SBA approval, provided that the Borrower and Lender are in compliance with all terms. The contracting parties, as a result of a properly executed change order, may agree to increase the contract price subsequent to the approval of the Contract CAPLine. In such event, if the overall line amount needs to be increased, the Lender must comply with Ch. 5, Para. B.2, For SBA loans that have been fully disbursed, in this Section below to obtain SBA’s approval of the increase in the line. The contracting parties, as a result of a properly executed change order, also may agree to decrease the contract price subsequent to the approval of the Contract CAPLine and/or after a progress advance was made. In such event, the lender must ensure the Borrower is aware that the next future advance or future advances, if necessary, will be at the decreased amount. 3. Seasonal CAPLines Eligibility To be eligible for a Seasonal CAPLine, the Applicant must:
SOP 50 10 8 B.Ch3.A.3.i
i. Have been in operation for at least 12 calendar months; and ii. Be able to demonstrate a definite pattern of seasonal activity. Eligible Uses of Proceeds i. Borrowers must use the loan proceeds solely to finance the seasonal increases of accounts receivable and inventory (or in some cases associated increased labor costs). ii. Funds must not be used to: a) Maintain activity during the slow periods of the business’s cycle; or b) Refinance existing debt.
Operationalizing SBA SOP 50 10 8, B.Ch3.A.1 — Working Capital CAPLines
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