Taking Advantage of the Community Advantage Loan Program
If your business operates in what’s known as an underserved area and could benefit from additional capital, the Community Advantage Loan Program, an initiative of the Small Business Administration, may be able to help. While the program had been slated to expire this year, it recently was extended to September 30, 2024. In addition, the maximum loan amount increased from $250,000 to $350,000, while the top unsecured loan amount jumped from $25,000 to $50,000.
Does your business qualify?
Many Community Advantage borrowers are small business owners and entrepreneurs working in underserved markets who are considering expansion, or need working capital or inventory. They’ve generally been in business for less than three years and don’t qualify for traditional financing. While potential borrowers must demonstrate creditworthiness and the viability of their business ideas, loan qualification generally isn’t impacted by their balance sheets or, for smaller loans, collateral.
As of this writing, the maximum interest rate on Community Advantage loans will vary based on the amount of your loan, but will range from prime plus 4.5% to 6.5%. Loan maturities are based on the use of the proceeds and your business’s ability to repay, but generally are a maximum of 10 years for working capital and 25 years for real estate. In some cases, revolving loans are allowed.
How can you access Community Advantage loans?
Like many SBA loans, Community Advantage loans are available through specific lenders. These include Certified Development Companies (CDCs), microloan program intermediaries, Intermediary Lending Pilot (ILP) program intermediaries, and nonfederally regulated Community Development Financial Institutions (CDFIs) that are certified by the U.S. Treasury.
At least 60% of lenders’ Community Advantage portfolios need to be in underserved markets. Just what is an underserved market? Examples include:
- Low-to-moderate-income (LMI) communities,
- Businesses in which more than half of the full-time workforce is low-income or resides in LMI census areas,
- Businesses in business for no more than two years,
- Businesses in rural areas, and
- Veteran-owned businesses.
While each lender will have its own policies, the SBA does have some requirements that typically come into play whenever it’s extending credit. Borrowers generally must be for-profit, operate legally and do business in the United States. The owner needs to have invested time and money into his or her business.
Like applicants for some other SBA loans, businesses seeking Community Advantage loans need to complete SBA Form 1919,
Borrower Information Form, and SBA Form 2449, the
Community Advantage Addendum. Some borrowers may need to complete additional forms.
What is the SBA’s role?
The SBA guarantees a portion of each Community Advantage loan — the amount will vary with the size of the loan. Turnaround time within the SBA for loan approvals is typically between five and 10 days. This is in addition to the time the lender requires.
Along with the interest charged, the SBA typically charges servicing and guaranty fees that vary based on the loan amount and repayment terms. However, these fees are waived for loans approved in 2022. (The lender may charge additional fees.)
What is your lender’s role?
While all SBA loans require a personal guarantee from owners of 20% or more of the business, if your loan is $50,000 or less, the lender isn’t required to take collateral. For larger Community Advantage loans, your lender needs to follow the collateral policies and procedures it’s established for other, similarly sized, non-SBA-guaranteed commercial loans.
Your lender will need to place a first lien on the assets that are financed with the loan proceeds, as well as against your fixed assets, including real estate, until the loan is fully secured. In some cases, the lender is not required to use real estate as collateral.
Is it right for you?
Community Advantage loans can make sense for many businesses. Your accounting professional can help you determine if one would be a good source of funding for your business.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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