She won a $420K contract. Her SBA line came back at $168K.

"Why is the line smaller than the job?" Jae (a made-up founder, 26) had just landed a $420,000, nine-month contract to rebuild three sports fields for a school district, through Fieldline Turf Co. (a made-up landscaping company in Tucson). She asked her bank for a $420,000 Contract CAPLine. The term sheet said $168,000.

The bank wasn't lowballing her. That's the formula.

This is general information, not legal or financial advice. Confirm every rule with your lender and the current SOP before you apply.

The one tip

A Contract CAPLine finances what the job costs you, never what it pays you. Size your ask from your own cost schedule and cash-flow projection, not from the contract price.

Under SBA SOP 50 10 8.1 (effective October 1, 2026), Section B, Chapter 4:

• Proceeds pay only the costs of specific contracts, including overhead tied to them.
• They can't cover markup or profit, permanent working capital, fixed assets, refinancing, or a job where significant work has already begun.
• On a single contract paid in one lump sum, the line equals the total costs on your project cost schedule.
• On a single contract with multiple payments, the line equals your greatest projected cash deficit on that contract, plus 20%. It revolves as payments come in.
• The application needs a line-item project cost schedule (materials, labor, overhead, no profit) and a copy of the contract.
• Before the first draw, you and the lender must tell the client in writing that contract payments are assigned to the lender, and get it acknowledged in writing.
• The client then pays the lender. Each check covers interest first, then what's owed on the line.

Worked example

All numbers are made up.

• Contract price: $420,000, paid in monthly installments.
• Cost schedule: $190,000 materials, $120,000 labor, $25,000 equipment rental, $30,000 allocated overhead. Total: $365,000.
• Profit Jae expects: $55,000. The line can't touch it.

Jae's month-by-month projection shows her deepest hole in month 3: $140,000 spent on turf, irrigation and crews before the district's checks catch up.

Line amount: $140,000 plus 20% = $168,000.

SBA's guaranty on a loan over $150,000 is 75%, so $126,000. If the line matures in 12 months or less, SBA's upfront fee is 0.25% of the guaranteed portion: $315. A maturity over 12 months moves into the regular fee table.

Interest is an assumption: 10.5% on about $90,000 drawn, on average, over nine months is roughly $7,100.

Here's the part founders miss. The district pays the lender, not Jae, until the line is cleared. Her $55,000 shows up at the end of the job, minus interest. If she was counting on the profit to make rent in month 4, her plan has a hole the bank won't fill.

And payments from this contract can't pay down a different contract on the same line.

The assignment shortcut

The written assignment notice can be skipped if at least two of these are true:

1. The contract term is 12 months or less.
2. She has a successful track record with this district on the same or similar contracts.
3. Her historical and projected financials show debt service coverage above 1:1.
4. The district pays the lender directly, or a funds-control setup handles a bonded job.
5. She pledges other worthwhile collateral.

Jae's nine-month term already counts for one. Last summer's district job counts for two.

Do this week

1. Build a line-item cost schedule for the contract: materials, labor, equipment, allocated overhead. Leave profit off.
2. Map cash month by month: what you spend versus when payments arrive. Circle the worst month.
3. Multiply that number by 1.2. That's the line to ask for on a multi-payment contract.
4. Check that work hasn't significantly started. Apply before you mobilize, not halfway through.
5. Count your assignment exceptions. If you have two, ask the lender to skip the notice. If not, warn your client it's coming.
6. Ask which conditions are SBA's and which are bank overlays.

For ongoing receivables and inventory, read our post on Working Capital CAPLine borrowing base math. For a peak season rather than a single job, see Seasonal CAPLines.

Sources: SBA SOP 50 10 8.1, Section B, Ch. 4, Para. A.2 (eligibility and uses), Para. B.1 (loan amounts) and Para. F.2 (assignment of contract proceeds and disbursement); Section A, Ch. 4 (upfront fee table); Appendix 14, Para. B.5; Appendix 17 (CAPLine maturities); Appendix 20 (Contract CAPLine documents), on SBA's SOP 50 10 page; SBA's lender page on types of 7(a) loans; 13 CFR 120.390 on eCFR. More in the series: SBA 7(a) Playbook

Verified against SOP 50 10 8.1 text: October 30, 2026.