What are the rules for a Seasonal CAPLine?
Short answer
You need at least 12 calendar months of operations and a definite seasonal pattern. Proceeds can finance only seasonal increases in receivables and inventory, and sometimes related labor (SOP 50 10 8.1, Sec. B, Ch. 4, Para. A.3).
A Seasonal CAPLine requires at least 12 calendar months of operations and a definite pattern of seasonal activity (SOP 50 10 8.1, Sec. B, Ch. 4, Para. A.3.a).
What it can finance
Proceeds must be used solely for seasonal increases in accounts receivable and inventory, or in some cases the related labor costs (Para. A.3.b).
What it cannot finance
- Keeping the business running through slow periods.
- Refinancing existing debt.
How draws and repayment work
- Funds go out during the seasonal build-up, when cash needs exceed receipts (Para. F).
- The final draw should leave time to turn the money back into cash before a 30-day clean-up period or maturity.
- Principal must be repaid as soon as you receive the cash from seasonal sales.
- Interest should be paid monthly.
Size and paperwork
The loan amount is based on cash flow projections and should match the cost of the seasonal build-up (Para. B.1.e). The lender must get month-by-month history showing the seasonal need, plus your month-to-month cash flow projection for the next 12 months (Appendix 20, Para. B.5).
A single-transaction line should have a maturity tied to the seasonal cycle (Appendix 17, Para. B.5). If the lender uses borrowing base certificates, you must submit them at least monthly (Para. F).
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