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.
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:
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.
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:
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.
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:
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:
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:
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.
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.
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.
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.