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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 $350,000 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 $350,000
- 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 $350,000, 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, 2024.
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 $350,000, but there’s a catch. That $350,000 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 $340,000.
Businesses applying for a Community Advantage loan over $50,000 must also secure the loan with business assets as collateral. The SBA increased the unsecured limit and the maximum loan amount in April 2022, after extending the pilot program to September 30, 2024.
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.
What's considered an underserved market?
The SBA considers the following businesses to be an underserved market:
- New businesses. The SBA defines this as businesses no more than two years old.
- Businesses in low-to-moderate income (LMI) communities. This also includes businesses where at least 50% of employees earn a low income or live in an LMI area.
- Veteran-owned businesses. This includes any business more than 51% owned or controlled by current or former qualified servicemembers.
- Businesses in HUBZones. This stands for historically underutilized business zones and refers to areas that are struggling the most based on census data. The SBA has a map of HUBZones on its website.
- Businesses in Promise Zones. These are areas the federal government has designated as economically distressed. There are currently 22 Promise Zones throughout the US, including Atlanta, Nashville and Philly.
- Businesses in Empowerment Zones. These are economically depressed urban and rural areas that are eligible for tax cuts and grants. There are currently 30 Empowerment Zones scattered across the US, including New York City, Los Angeles and Chicago.
- Businesses in Opportunity Zones. These are economically distressed areas determined by the US Treasury. The SBA has a list of Opportunity Zones on its website.
- Businesses in rural areas. These are areas defined by the US Census Bureau as either “mostly rural” or “completely rural.” You can find out if your area qualifies on the SBA website.
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 April 2022, the prime rate is 3.5%, so the maximum interest you can pay on a new Community Advantage loan is 9.5%. 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 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 $350,000: 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.
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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.
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.
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:
- SBA Form 1919:Borrower information form
- SBA Form 2499: Community Advantage addendum
- SBA Form 912: Statement of personal history
How to fill out SBA Form 2499
Follow these instructions to fill out the Community Advantage addendum:
Question 1: Check off the category that qualifies you as an underserved market. If your business doesn’t qualify, check None of the above.
Question 2: Check Business not established yet if you’re a startup. Otherwise, check Existing business and enter your business’s most recent annual gross revenue.
Question 3(a): If you’ve received management training, technical assistance or counseling from your lender in the past year, check Yes and continue with the form. Otherwise, check No and submit the form to your lender.
Question 3(b): Check all the types of assistance your lender has provided your business over the past year. If it’s helped you in other ways, check Other and write it in.
Question 3(c): Check the type of location where you’ve received training. If the type of location isn’t listed, check Other and write it in.
Question 3(d): Check the range of hours you’ve received each type of training.
An SBA Community Advantage loan is ideal for small and new businesses looking for financing under $350,000. 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.
Frequently asked questions
Can I get a revolving line of credit through the SBA Community Advantage program?
No, the SBA doesn’t allow lenders to offer revolving lines of credit through the Community Advantage program. Read our guide to business lines of credit to find a lender that provides this type of financing.
How long does it take to get approved for a Community Advantage loan?
It depends on your application and lender. However, Community Advantage loans can easily take around 60 days from start to finish. You can speed things up by having your documents and forms ready, and quickly responding to any questions from your lender.
What's considered technical assistance and counseling from a lender?
The SBA considers technical assistance or counseling to be any help or training your lender provides to fill knowledge gaps in your business — like showing you how to make an income statement. Most Community Advantage lenders evaluate your business and provide these services to help you grow and succeed.
Does the SBA offer any other microloans?
Yes, you can get a microloan through the SBA 7(a) Small Loans program and the SBA Non-7(a) Microloans program. Small loans go up to $350,000 and microloans go up to $50,000.
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