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SBA Community Advantage loans explained

How these government-backed microloans for underserved businesses work.

Small Business Administration (SBA) loans are often some of the most competitive business financing deals out there. But they’re extremely popular and can be difficult to qualify for. If your business is in an underserved area and wants to borrow $250,000 or less, you might want to take a look at Community Advantage loans first. This SBA pilot program comes with a social mission that could potentially make it easier to qualify.

SBA Community Advantage loans at a glance

  • Loan amounts: Up to $250,000
  • Maximum interest rate: Prime + 6%
  • Terms: Up to 25 years
  • Guarantee fee: 0.25% to 3%
  • SBA guarantee: 75% to 85%

What’s an SBA Community Advantage loan?

An SBA Community Advantage loan is a business microloan partly backed by the government and issued by a community-based lender. The goal of the program is to provide businesses in underserved markets with affordable financing, including those that aren’t able to qualify for other SBA programs.

Since Community Advantage lenders are mission-oriented, they’re often more willing to overlook factors like mediocre credit, low revenue and lack of experience than other types of SBA lenders. With loan amounts up to $250,000, it’s the second-smallest SBA loan program out there. It works a lot like the 7(a) program, with similar rates and fees.

Must read: Community Advantage is a pilot loan program

The SBA is still testing out the Community Advantage program to see if it’s worth keeping around. It will either be renewed or expire on September 30, 2022.

How does the SBA Community Advantage program work?

While the rates and terms your business qualifies for are up to your lender, the SBA has a set of rules that providers must follow when they offer Community Advantage loans.

How much can I borrow?

Lenders can offer SBA Community Advantage loans up to $250,000, but there’s a catch. That $250,000 is actually the limit for the total balance of all SBA Community Advantage loans you can have at one time. So if you’re still paying off a Community Advantage loan with a balance of $10,000, the most you can borrow is $240,000.

Which businesses qualify?

The basic eligibility requirements for the SBA 7(a) program also apply to the Community Advantage program. Your business must:

  • Be for profit and operate in the US.
  • Show that you need financing.
  • Meet the SBA’s size standards.

Since the SBA Community Advantage program is geared toward businesses that otherwise can’t qualify for funding, eligibility requirements are a little more relaxed than other SBA programs. For example, you could qualify for a Community Advantage loan if you have bad credit or have been in business for less than a year.

However, lenders must provide at least 60% of its Community Advantage loans to underserved markets.

How much does it cost?

There are three main factors that affect the cost of Community Advantage loans: the interest rate, fees and loan terms. The SBA sets limits on all of these.

Maximum interest rate

The SBA uses the following formula to set the maximum interest rate on Community Advantage loans:

Wall Street Journal prime rate + 6%

As of November 2018, the prime rate is 5.25%, so the maximum interest you can pay on a new Community Advantage loan is 11.25%. Read our article on SBA loan rates to see how this compares to interest on other SBA loans. Or check out our page on the WSJ prime rate to find out exactly it works.

SBA fees

SBA guarantee fees range from 0.25% to 3.75%, depending on how much you borrow and your loan term. For loans with a term of 12 months or longer, expect to pay these fees based on your loan amount:

  • Less than $150,000: 2% of the guaranteed portion
  • $150,001 to $250,000: 3% of the guaranteed portion

Loans with 12-month terms or less come with a guarantee fee of 0.25%.

The SBA also charges lenders an annual fee of 0.55%, which your provider might require you to pay.

Fee relief for businesses in HUBZones or rural areas

Businesses located in HUBZones or rural areas qualify for reduced fees. They only have to pay an upfront guarantee fee of 0.6667% of the guaranteed portion for any loan under $150,000. And if the loan term is over 12 months, your lender can’t keep more than 0.1667% of the fee. The SBA also doesn’t charge lenders an ongoing annual fee.

Service provider and agent fees

If you hire a lender or other service to help with your application, the SBA limits how much they can charge:

  • Lenders can’t charge more than $2,500 in packaging or application fees.
  • Other agents can’t charge more than 2.5% of the loan amount or $7,000 for packaging services, whichever is less.
Maximum loan terms

The maximum time you have to pay back your loan depends on how your business plans to use the funds:

  • Working capital: Up to 10 years.
  • Equipment: Up to 10 years.
  • Real estate: Up to 25 years.

How much does the SBA guarantee?

The SBA guarantees between 75% and 85% of your Community Advantage loan, depending on how much you borrow:

  • Loans $150,000 or less: 85%
  • Loans over $150,000: 75%

This typically means that business owners are required to personally guarantee between 15% and 25% of the amount borrowed.

Compare SBA loan providers

Name Product Filter Values Loan amount APR Requirements

Biz2Credit business loans
Finder Rating: 3.75 / 5: ★★★★★

Biz2Credit business loans
$25,000 – $250,000
Starting from 8.99%
6+ months in business; $150,000+ monthly revenue; 500+ credit score
Get only the capital you need through secure, prescreened lenders with this highly rated company offering SBA, expansion, working capital and other loans.

OnDeck short-term loans
Finder Rating: 4.6 / 5: ★★★★★

OnDeck short-term loans
$5,000 – $250,000
As low as 35%
600+ personal credit score, 1 year in business, $100,000+ annual revenue, active business checking account
A leading online business lender offering flexible financing at competitive fixed rates.

Fora Financial business loans
Finder Rating: 4.1 / 5: ★★★★★

Fora Financial business loans
$5,000 – $500,000
6+ months in business, $12,000+ monthly revenue, no open bankruptcies
Get qualified for funding in minutes for up to $500,000 without affecting your credit score. Best for companies with at least six figures in annual revenue.

Lendio business loans
Finder Rating: 4.75 / 5: ★★★★★

Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.

ROK Financial business loans
Finder Rating: 4.7 / 5: ★★★★★

ROK Financial business loans
$10,000 – $5,000,000
Starting at 6%
Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
A connection service for all types of businesses — even startups.

Compare up to 4 providers

Where can I get an SBA Community Advantage loan?

In most cases, the SBA doesn’t provide financing itself, though it has a hand in the application process and guarantees part of your loan. You can find an SBA-approved Community Advantage lender on the SBA website. These include the following types of lenders:

Certified development companies

Certified development companies (CDCs) are nonprofit lenders that work with the SBA to provide government-backed loans. They’re highly local and specialize in the financing needs of a particular region. Their goal is to provide financing opportunities to communities that might otherwise not be served. Currently, there are around 270 CDCs in the US. You can find a CDC near you by visiting the SBA website and selecting your state.

Community development financial institutions

Community development financial institutions (CDFIs) are nonprofits that provide funding to small businesses in underserved areas. A CDFI can be a bank, online lender, credit union or even a venture capital firm. It must be certified by the US Department of Treasury and not be federally regulated to offer Community Advantage loans.

Learn how a CDFI works

Microloan program intermediaries

Also known as microlenders, these are nonprofit organizations with experience in lending that work to serve a specific community. As intermediaries, they don’t finance the loans themselves. Instead, they borrow from the SBA and pass on the funds to small businesses.

Compare microlenders and learn more about how they work

Intermediary Lending Pilot program intermediaries

Intermediary Lending Pilot (ILP) program intermediaries are local nonprofit lenders specifically selected by the SBA. Similar to microlenders, they act as the go-between to provide funds from the SBA to small business owners. The difference is that ILP intermediaries only offer funding to pilot programs, so this option won’t be available if the Community Advantage program loses its pilot status.

What do I need to apply for an SBA Community Advantage loan?

SBA applications are known to be detailed. The documents you need to provide depends on your lender — many request three years of personal and business tax returns, as well as business bank statements, financial projections and balance sheets. Newer businesses might also be asked to provide a business plan.

In addition to this, the SBA requires borrowers to fill out three SBA forms at the very least:

Bottom line

An SBA Community Advantage loan is ideal for small and new businesses looking for financing under $250,000. Its maximum rates might be on the high end for an SBA loan, but it’ll likely beat out other offers if you don’t have strong credit or revenue.

If you’re looking for major financing, you might want to check out other SBA loan programs instead. Or read our guide to business loans to start comparing lenders.

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