In comparing your options for small business loans, you’ve likely come across SBA loans. From the traditional 7(a) loan to the CDC/504 loan, these partially government-guaranteed loans offer some of the best terms and rates on the market. If you’re a startup or business owner with average credit, however, you may feel alienated by the strict requirements necessary to qualify for many SBA loan programs.
Luckily, there is a type of SBA loan designed specifically for businesses in underserved markets—SBA Community Advantage loans. This pilot loan program, housed under the larger 7(a) program, is an ideal option for newer businesses, businesses operating in traditionally “risky” industries, as well as those owned by women, minorities, and veterans.
Is the SBA Community Advantage loan program right for your small business?
We’re here to help you find out.
What Are SBA Community Advantage Loans?
As we mentioned above, SBA Community Advantage loans are a specific type of SBA loan housed under the 7(a) loan program. Unlike other types of SBA 7(a) loans, however, the SBA Community Advantage loan program is a pilot program—meaning it will operate for a limited period of time, unless it’s extended or made a permanent part of the SBA loan programs.
This being said, the SBA Community Advantage loan program was created in 2011 to “meet the credit, management, and technical assistance needs of small businesses in underserved markets.” Although originally set to expire on March 31, 2020, the pilot program has been extended until September 30, 2022.
With this in mind, although the SBA Community Advantage loan program is technically part of the 7(a) program—and does share some similarities in the application requirements—overall, this program differs from other SBA loans in a number of ways.
First and foremost, whereas most SBA 7(a) loans are issued by SBA lenders like national, regional, and local banks, SBA Community Advantage loans are issued by specific lenders who are enrolled in this program, often referred to as CA lenders.
CA lenders can be:
- Certified development companies (CDCs)
- Microloan program intermediaries
- Intermediary lending pilot (ILP) program intermediaries
- Non-federally regulated Community Development Financial Institutions (CDFIs) certified by the U.S. Treasury Department
These organizations must apply to be CA lenders, however, as well as maintain loan portfolios that show that they’re working with businesses in underserved markets.
SBA Community Advantage Loan Program Details
Now that you have an overall sense of how the SBA Community Advantage loan program works, let’s discuss what these loans actually look like. When it comes down to it, these SBA loans have the following terms and conditions:
- Loan amount: SBA Community Advantage loans are smaller SBA loans, available in amounts up to $250,000.
- SBA-guarantee: The SBA guarantees as much as 85% of the loan amount for loans of $150,000 or less, and as much as 75% for loans of $150,001 and more.
- Interest rates: Although CA lenders have some discretion in terms of interest rate, the SBA sets a maximum rate of the prime rate plus 6% for these loans. Generally, SBA Community Advantage loan rates range from 7% to 9%.
- Repayment terms: Varies based on borrower qualifications and purpose of the loan; maximum of 10 years or the useful life of the equipment, maximum 10 years for working capital, and maximum 25 years for real estate.
- Fees: SBA Community Advantage loans will require an upfront SBA guarantee fee that can range from 0.25% to 3.0% based on the loan amount and repayment terms. The CA lender has some discretion to charge their own additional fees. They are, however, restricted to a maximum processing or application fee of $2,500 per SBA guidelines.
- Eligible loan purposes: Like other SBA 7(a) loans, SBA Community Advantage loans can be used for virtually any business purpose—working capital, real estate purchase, renovations, equipment purchases, debt refinancing, and more. These loans cannot, however, be used for revolving lines of credit.
- Collateral and personal guarantee: For loans of $25,000 or less, the CA lender is not required to take collateral. For loans above $25,000, on the other hand, SBA guidelines state that the lender should follow the collateral policies they have in place for other, similarly-sized non-SBA loans. Collateral aside, SBA Community Advantage loans will require a personal guarantee.
As you can see based on these details, other than the way the loans are issued, SBA Community Advantage loans function fairly similarly to traditional 7(a) loans. To this point, even though Community Advantage loans are only available in smaller loan sizes, like SBA 7(a) loans, they are highly desirable—with low interest rates and long repayment terms.
SBA Community Advantage Loan Requirements
Just as SBA Community Advantage loans are similar to SBA 7(a) loans in some ways and different in others, this SBA loan program has both general and program-specific requirements for businesses to be able to qualify.
To this point, it’s important to note that although the SBA has some guidelines in terms of loan qualifications, others will vary based on the CA lender you’re working with. With this in mind, let’s break down both the general SBA loan requirements, as well as those unique to the SBA Community Advantage program.
Overall, here are some of the overarching qualifications you’ll need to meet to be eligible for the SBA Community Advantage loan program:
- Must be a for-profit business in an eligible industry operating in the U.S.
- Must be a “small business” according to the SBA definition
- Must have exhausted other traditional financing options
- Must have invested some of your own time and money into the business
- Must be able to show “good character” and an ability to repay the loan
- Have not previously defaulted on any government-guaranteed business loans
Community Advantage-Specific Requirements
When it comes to proving your business’s ability to repay the loan, most SBA loan programs allow the individual lender to evaluate this qualification on their own. Due to the nature of the SBA Community Advantage loan program, however, the SBA lays out more specific guidelines for meeting these types of requirements.
To this point, the qualifications for an SBA Community Advantage loan are much more flexible than traditional 7(a) loans:
- Minimum credit score: Typically, businesses need excellent credit to qualify for an SBA loan. With this program, however, there’s much more leniency, with SBA guidelines allowing CA lenders to submit applicants with credit scores as low as 140. Of course, the lender is able to make some of their own credit requirements as well.
- Time in business: Most traditional SBA lenders will require that you have at least two years in business to qualify for an SBA loan. The SBA Community Advantage loan program, on the other hand, is much more startup-friendly. Businesses are encouraged to apply regardless of their time in business, as long as they can provide a vision for the future—including financial projections, a thorough business plan, and relevant experience in the industry.
- Business financials: Similar to the time in the business requirement, traditional SBA loan applicants should be able to show strong business financials (ideally, that they’re profitable). With this program, however, there is again much more flexibility. As long as you can show a solid business plan and financial projections, CA lenders should be willing to work with you.
How to Apply for an SBA Community Advantage Loan
So, if you think the SBA Community Advantage pilot loan program might be right for your business, the next thing you need to do is learn how to apply.
This being said, the first step to completing your SBA loan application is finding a Community Advantage Lender to work with. There are over 100 approved SBA Community Advantage lenders across the country.
Some are more regional in focus, like Wisconsin Women’s Business Initiative Corporation (WWBIC) or Mountain West Small Business Finance (MWSBF), while others cover multiple geographies, like Accion. You can use the search tool on the SBA’s website to browse applicable CA lenders in your area or reach out to your local SBA office or resource center.
Once you’ve identified your CA lender, you’ll be able to work with them to submit your application. Although some of the required documentation will vary based on the lender, you can expect to provide some, if not all, of the following:
- General personal and business information
- Business and personal tax returns
- Business financial statements
- Bank statements
- Business plan
- Business debt schedule
- Resumes of company management
- Collateral and personal guarantee
- Legal documents
As we mentioned above, compared to traditional SBA 7(a) loans, the requirements for the Community Advantage loan application will be more flexible. This being said, however, you’ll still want to ensure that you provide anything and everything the lender requires to speed up the application process and increase your chances of qualifying for the loan.
To this point, if you’re a startup business or a business with average credit, it will be all the more important that you provide a detailed business plan with financial projections to illustrate your business’s ability to repay the loan.
Moreover, you’ll also need to submit certain SBA forms, including Form 413, the Personal Financial Statement, and Form 1919, the Borrower Information Form. The SBA Community Advantage loan program also requires Form 2449 (shown below), which is an addendum to Form 1919 and specific to this program.
How Long Does It Take to Be Approved?
In general, SBA loans have a longer underwriting process and time-to-fund in comparison with other types of business loans. With SBA Community Advantage loans, you’ll find that the approval process can be particularly slow as these loans are underwritten by the CA lender and then approved by the SBA.
Overall, after the CA lender decides to move forward with a loan request, it might take another 30 days or so to finish final underwriting, SBA approval, and closing. Program guidelines do specify, however, that the SBA should turn around their portion of the application approval process within five to 10 days.
Ultimately, many factors can influence your SBA loan timeline, but being prepared and responsive to the lender’s requests for information will definitely expedite the process.
Is the SBA Community Advantage Loan Right for Your Business?
With all of this information, the final question remains: Is this SBA loan program right for your business? When it comes down to it, only you can make this decision—however, here are some points you’ll want to keep in mind.
- Long repayment terms and low interest rates
- Flexible requirements compared to other SBA loans
- Loan can be used for virtually any purpose
- Great for startups, businesses with average credit, or those in traditionally “risky” industries, like food and beverage businesses
- Great for businesses who have been denied other forms of financing
- Great for women-owned businesses, minority-owned businesses, and veteran-owned businesses
- Lower loan amounts compared to other SBA loan programs, as well as other loan options on the market
- Requires a detailed application and is slow to fund
- Cannot be used as a revolving line of credit
- Personal guarantee (and maybe collateral) required
All of this being said, there’s no doubt that SBA Community Advantage loans are a flexible and affordable form of financing for small businesses.
Therefore, if you think this type of loan might work for your business, it’s certainly worth looking into CA lenders in your area, reaching out, and having a conversation about your business’s financial needs.