Key takeaways:

• The SBA introduced a new working capital line of credit program in 2024.
• It offers up to $5 million in flexible working capital through revolving or non-revolving lines of credit.
• These loans are available to eligible businesses with at least 12 months business history.
• Find out whether this loan may be right for your business, and explore alternatives. 

As a small business owner, having access to working capital can make the difference between taking advantage of opportunities, instead of just struggling to juggle bills and keep up with day-to-day operations. 

The Small Business Administration’s (SBA) new 7(a) Working Capital Pilot (WCP) Program offers a promising financing solution, with flexible lines of credit designed specifically for small businesses. Business owners are already successfully taking advantage of this new type of SBA loan.

Should you consider this relatively new SBA loan? Let’s explore how this program could benefit your business.

What is the SBA Working Capital Pilot Program?

The WCP program is a specialized initiative within the SBA’s 7(a) loan program that focuses specifically on providing working capital through lines of credit. Whether you need to manage seasonal fluctuations, finance large orders, or support your business’s growth, this program offers flexible financing options up to $5 million. 

The program includes a government guaranty up to $3.75 million, with higher guarantee percentages available for smaller loans—up to 85% for loans of $150,000 or less. 

Key features:

1. Maximum loan amount of $5 million

2. Repayment period of up to five years

Interest rates may be fixed or variable, and based on loan amount, they cannot be more than: 

• $50,000 or less: base rate +6.5%
• $50,001 – $250,000:  base rate +6.0%
• $250,001 – $350,000:  base rate +4.5%
• $350,001 and greater: base rate +3.0%

The base rate can be the Prime rate, the daily Secured Overnight Financing Rate (SOFR) + 3%, Prime Rate, or SBA’s Optional Peg Rate.

As of December 18, 2024 the Prime Rate is 7.75% but will drop as a result of the Fed rate cut announced that same day. A loan of $1 million based on a Prime rate of 7.75%,, would put the maximum interest rate at 10.75%. 

The WCP program offers two distinct types of credit lines, each designed to meet different business scenarios. 

Transaction-Based Lines of Credit

The first option is the Transaction-Based Line of Credit, which can be particularly valuable if you need financing for specific business transactions or projects. This type can be either revolving or non-revolving, making it ideal for manufacturers building up inventory or contractors working on government contracts. The flexibility allows you to match the financing to your specific business cycles and project needs.

For example, if you own a manufacturing business and need to build up inventory, or are a contractor working on government contracts, this type of credit line could provide the flexible funding you need.

Asset-Based Line of Credit

The second option is the Asset-Based Line of Credit, which works particularly well for businesses with consistent accounts receivable and inventory. This revolving credit line is based on a monthly Borrowing Base Certificate and typically comes with a 12-month commitment and annual renewal options. The credit line is secured by your accounts receivable and inventory, providing a stable foundation for ongoing working capital needs.

Transaction-Based Lines of Credit	Asset-Based Lines of Credit
Revolving or non-revolving	Revolving credit line
Single or multiple transactions	Based on monthly Borrowing Base Certificate
Good for specific projects or contracts	Typically 12-month commitment with annual renewal
Flexible to match business cycles	Secured by accounts receivable and inventory

Benefits of SBA WCP for Small Business Owners

Business lines of credit are one of the most popular types of business financing. With a line of credit, your business can tap funds as needed and you only pay interest on money you’ve borrowed. 

The 7(a) WCP is designed to bring together features of other SBA lines of credit to offer borrowers more flexibility. It can help businesses access a working capital line of credit earlier than they may with other products, transition from SBA Express loans into larger lines of credit, or expand into international markets sooner, for example.

Many of the requirements are similar to other SBA loans, making it easy for lenders to offer. (Most SBA loans, with the exception of Disaster Loans, are made by lenders rather than directly by the U.S. Small Business Administration. Instead the SBA guarantees a significant portion of the loan to make them less risky for lenders.) 

Loan proceeds may be used for a variety of working capital purposes, and may be used for debt refinancing in certain cases. 

The program’s flexibility allows small businesses who qualify the ability to manage cash flow, finance growth, or take advantage of new opportunities as they arise.

Eligibility And Application Process

This loan is a type of SBA loan, and it falls under the 7(a) program of SBA loans. The qualification criteria will feel familiar to anyone who has ever researched or applied for another SBA 7(a) loan. 

To qualify for the WCP program, your business meet several key requirements, including:

1. Business history: For the WCP, your business must have at least 12 months of operational history. (Other types of small business loans, including other 7(a) loans and microloans may be available to startups.) 

2. Financial management: For most SBA loans, you need to demonstrate the ability to repay the loan. Specifically, this loan program requires:

• Financial statements
• Accounts receivable and payable aging reports
• Inventory reports

3. Size standards: Your business must meet SBA size standards for your industry. This is true of all SBA loan options: your business must be considered a “small business” within SBA size definitions. (That definition is probably more generous than you think.)

Your industry is determined by your business NAICS code, so it is important to choose the right one.  

4. Location: Must be organized for profit and located in the United States.

5. Not operate in a prohibited industry. Not all types of businesses are eligible for SBA loans (for example, pyramid sales, gambling businesses, or speculative businesses). You can see the list of prohibited businesses here. 

5. Acceptable credit. There is no minimum credit score requirement, but the SBA does specify that the “applicant must be creditworthy”, and in other related guidelines the SBA states that: “Lenders, CDCs, and SBA may use a business credit scoring model. When approving direct or guaranteed loans, Lenders, CDCs, and SBA may consider (as applicable) the following criteria: credit score or credit history of the applicant (and the Operating Company, if applicable), its Associates and any guarantors…”

You apply for this type of SBA loan through an SBA lender that has been approved to apply for this type of loan. Preferred lenders with delegated authority (PLP-WCP) can offer a more streamlined process for borrowers. They can process, close, service, and liquidate WCP loans without prior SBA review, which means faster processing times and less paperwork. While lenders must follow SBA guidelines, they may also have their own requirements (as long as they don’t discriminate on a non-prohibited basis). That means that one lender may be a better fit for your business than another.

Making the Most of the WCP Program

Small businesses can leverage this program in several practical ways to help manage cash flow. For seasonal businesses, the line of credit can help maintain operations during slow periods without depleting cash reserves. When growth opportunities arise, you can use the financing to expand inventory or purchase new equipment. 

The program is particularly valuable for fulfilling large orders or government contracts that might otherwise strain cash flow. For businesses involved in international trade, the program can help support export operations and manage the longer payment cycles often associated with international sales.

Is WCP Right for Your Business?

The WCP program could be an excellent fit if your small business needs flexible working capital but you’re having trouble getting financing with good terms from a traditional financial institution. This is especially true for businesses with consistent revenue but occasional cash flow gaps, or those looking to expand or take on larger contracts. 

SBA loans in general are often a good fit for businesses that might struggle to qualify for small business loan options at reasonable terms. You’ll need to demonstrate to the SBA that you can’t get a similar loan on reasonable terms. (Don’t worry about that last requirement too much: your SBA lender will guide you through the application process.)

Keep in mind that working capital loans and lines of credit, in general, are best for short-term financing. Entrepreneurs who need to borrow for longer periods may want to look into term loans instead. (There are a number of SBA term loan programs.) 

Also, expect the loan application process to take some time. SBA loans aren’t like an online business line of credit where your application may be approved and funded within hours or days. Still, the repayment terms, interest rates, and other benefits of these loans often make them well worth the work. 

Alternatives to WCP Loans

The WCP program isn’t the right option for all businesses. You may want to consider other options if you:

Need funding quickly. Online lines of credit and loans, business credit cards, and business cash advances will often offer faster financing, though costs may be higher. 

Don’t have good credit scores. Consider financing options that may be more credit flexible, or may not check personal credit. Financing for bad credit or no credit may include business cash advances, invoice financing or factoring, or crowdfunding. 

Want a smaller amount of financing. For small loans, a microloan, online small business loan, SBA Express loan, or even a business credit card may be a better option. 

Are in the startup stage. This program requires at least 12 months in business with documented revenue. Brand new businesses or pre-revenue businesses looking for startup loans may want to consider a 0% intro APR credit card for smaller financing amounts, crowdfunding, or other SBA loans that are available to new businesses. 

Nav’s Verdict

The SBA’s 7(a) Working Capital Pilot Program can be a terrific option for small businesses seeking flexible financing solutions. The combination of government backing, flexible terms, and specialized support can make it a valuable option for businesses looking to grow and stabilize their operations. 

However, if your business needs fast financing, or if you don’t meet the eligibility criteria, you may want to look at other funding options for your business. 

For working capital, a business line of credit, invoice factoring, or even a business credit card may offer an easier and faster approval process. 

The program’s design shows a clear understanding of small business needs, making it a worthwhile consideration for your business financing strategy.

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