What are SBA Community Advantage Loans?
SBA Community Advantages loans are a pilot program under the umbrella of SBA 7(a). The SBA launched the pilot program to help provide funding to businesses in underserved markets.
Specifically, the loan program provides funding to startups, newer businesses, and companies in riskier industries and helps fund underrepresented business owners, such as women, minorities, and veterans.
The SBA launched the pilot program in 2011. It was originally scheduled to end in 2020 but has since been extended to September 30, 2024. The SBA could extend it further, make it a permanent part of the 7(a) loan program, or let it expire on its scheduled date.
How does the SBA Community Advantage Loan Program work?
As a subset of SBA 7(a) loans, Community Advantages loans share many similarities with the larger business loan program. They are structured similarly, and business owners can use the loan proceeds for various business purposes.
Businesses can use the loan proceeds for:
- Commercial real estate.
- Working capital.
- Purchasing equipment, machinery, and other fixed assets.
- Purchasing inventory.
- Business Acquisitions.
- Refinancing business debt.
However, community Advantage loans differ from 7(a) loans in several important ways. For example, you cannot use the funds for a business line of credit.
The biggest difference is that businesses must apply to a specialized Community Advantage lender, often shortened to “CA lender.” CA Lenders must apply to the SBA to receive the special status to service Community Advantage loans.
CA lenders can be:
- Certified Development Companies (CDCs)
- Microloan intermediary lenders.
- Intermediary lending pilot (ILP) program participants.
- US Treasury-certified Community Development Financial Institutions (CDFI) that are not federally regulated.
Community Advantage loans offer the following loan amounts and terms:
- Maximum loan amount: $350,000.
- Maximum loan terms: 25 years for real estate; 10 years for all other purposes.
The SBA caps the interest rates lenders can charge. Maximum interest rates work as follows:
- Loans of $50,000 or less: Wall Street Journal (WSJ) prime + 6.5%.
- Loans between $50,001 and $250,000: WSJ prime + 6%.
- Loans over $250,000: WSJ prime + 4.5%.
As of December 22, 2022, the WSJ prime is 7.5%.
The SBA partially guarantees Community Advantage loans, which helps lower the interest rate and increases your approval chances. The SBA guarantees 85% of the loan amount for loans of $150,000 or less and 75% of the loan amount for loans over $150,000.
You’ll have to pay a guarantee fee for the portion of your loan that the SBA backs. Guarantee fees range from 0.25% – 3%. The CA lender might charge some additional fees as well.
CA lenders are not required to take collateral for loans of $25,000. SBA guidelines state the lender should collateralize loans of over $25,000 according to their collateral policy for non-SBA loans of similar amounts. Community Advantage loans require a personal guarantee.
How do you qualify for an SBA Community Advantage Loan?
Small business owners must meet both the SBA’s basic eligibility requirements and the program-specific qualifications of the CA lender. The SBA’s basic eligibility requirements are:
- Be a for-profit business operating and physically located in the US.
- Must be a small business, as defined by the SBA.
- The business owner must have invested time and money (equity) into the company.
- Must demonstrate good character and ability to repay the loan.
- Cannot have defaulted on any previous government-backed loans.
- Must not be eligible for credit elsewhere (SBA loans are “last resort” financing).
Other qualifications depend on the specific CA lender. However, the SBA sets guidelines for lenders that help ease some of the borrower qualifications, especially compared to other SBA loans.
While most SBA loans require an outstanding credit score, CA lenders can submit business owners with a credit score as low as 140 for SBA approval. However, the CA lender might set a different requirement for a reasonable personal credit score.
Time in Business
Most SBA loans are only available to existing businesses, but Advantage loans are available to startups and younger businesses. While some CA lenders might set a time in business requirement, the loan program usually doesn’t require the two years in business that other SBA loans require.
Since the loan program accepts startups, you usually don’t have to prove revenue, but you must provide projected business financials. The projections should be included in an overall business plan describing the company, its products or services, its market, etc. You must demonstrate a plan to hit your target financials. Those targets also need to include projected cash flow, as that is the primary source of repayment.
How do you apply for an SBA Community Advantage Loan?
United Capital Source can help you apply to a CA lender in our network following these steps.
Step 1: Gather Your Documents
Be prepared to provide:
- Driver’s License.
- Business license or certificate.
- Voided Business Check (for business bank account information).
- Bank Statements.
- Credit Report/Statement of Personal Credit History.
- Business Tax Returns.
- Credit Card Processing Statements.
- Personal Tax Returns – 3 Years.
- Business Tax Returns – 3 Years.
- Business Plan (Not in all cases).
- Personal Financial Statement.
- List of Real Estate Owned or Business Lease if applicable.
- Debt Schedule/Loan/Rent/Lease Documentation
- Deeds/Title/Ownership documentation for any collateral/Security
- Current Profit & Loss Statements and Balance Sheet Year-to-Date
- A/R and A/P Reports
- United Capital Source 1 Page Application
Step 2: Fill Out the Application
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Step 3: Speak to a Representative
Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This way, you won’t have to worry about any surprises or hidden fees during repayment.
Step 4: Receive Approval
SBA Loans through our network generally take 3-5 weeks to process. Once approved and your file is closed, funds should appear in your bank account in a few business days.
What are the benefits of Community Advantage Loans?
One of the main advantages of all SBA loans is that the government agency partially guarantees a significant portion of the loan. The guarantee lowers the risk for lenders, who can then offer larger borrowing amounts at lower interest rates and longer repayment terms.
As a part of the SBA 7(a) loan program, borrowers can use Community Advantage loan proceeds for various purposes. The loan program also has lower credit score, time in business, and revenue requirements than other SBA loans.
As such, it’s an excellent option for startups and young businesses. It also helps economic growth and development in underserved communities.
What are the drawbacks of Community Advantage Loans?
The most signification downside to the Community Advantage loan program is the low borrowing amount. These loans cap out at $350,000, whereas the main SBA 7(a) loan goes up to $5 million.
The program also requires working with a CA lender. There are much fewer CA lenders than general SBA-approved lenders. The specific qualifications also vary between lenders.
CA lenders also take longer to underwrite and fund loans. All SBA loans take a while to get approval, but Community Advantage loans can take months to close.
Pros & Cons
- Lower qualification requirements than other SBA loans.
- Available to new and existing businesses.
- SBA guarantee allows for low interest rates and long repayment terms.
- Accepts startups, young businesses, and “risky” industries.
- Excellent business financing option for women, minority, and veteran entrepreneurs.
- Borrowers can use the funds for most business purposes.
- Lower borrowing amount compared to other SBA loans.
- Requires a detailed application & takes longer to close the loan.
- Does not provide funding for a line of credit.
- Fewer lender options.
- Requires a personal guarantee and might require collateral.
Frequently Asked Questions
Here are the most common questions about SBA Community Advantage loans.
Is it difficult to get an SBA Loan?
It can be challenging for some business owners to get an SBA loan, although Community Advantage loans have lower approval thresholds. Even so, the application requires extensive documentation, you must find a lender to work with, and the funding time often takes weeks or months.
That being said, you meet the eligibility requirements and can afford to wait for the long funding time, SBA loans are the lowest-cost business financing options on the market.
Can I get an SBA Community Advantage Loan with bad credit?
The credit score requirements for Community Advantage loans are much lower than other SBA loans. Even so, it depends on the specific CA lender’s qualifications. But, in theory, getting approved for a Community Advantage loan with poor credit might be possible. If the SBA is not an option, we’ve got lenders that can facilitate a business loan with bad credit.
Are there other SBA Loans besides the Community Advantage Loan?
Yes, SBA lenders provide the following loan options:
- SBA 7(a) loans (which includes the pilot program).
- SBA CDC/504 loans.
- SBA Express Loans.
- SBA Export loans.
- SBA Disaster loans.
- SBA Microloans.
What are my options if I don’t qualify for an SBA Loan?
There are plenty of small business loan options if you don’t qualify for an SBA loan or need a faster funding time. Other small business loans include:
- Working capital loans.
- Equipment financing.
- Merchant cash advance.
- Accounts receivable factoring.
- Revenue-based business loans.
- Business lines of credit.
- Business term loans.
SBA Community Advantage Loan – Final Thoughts
The Community Advantage pilot program from the SBA provides an excellent financing opportunity to small business owners who couldn’t find credit elsewhere. The program helps new businesses and startups get off the ground while also promoting economic growth in underserved areas.
If you meet the borrower criteria, don’t need more than $350,000, and can afford to wait for approval and funding, it’s the best loan option available. It would be best if you prepared for the detailed and lengthy application process by preparing your documentation ahead of time.
Contact us to learn more about SBA and other small business loans. Our loan executives can help you find the best financing options for your business needs.