SBA Community Advantage Loans: What Are They and Who Qualifies?
SBA stands for the Small Business Administration, which is an American government agency that works to promote small businesses. There are different types of SBA Advantage loans, with “Community” loans being among the newest options available.
Community Advantage Loans are “mission-focused,” provided through community lenders, and place special emphasis on providing resources to startups and other businesses in high-need communities. When it comes to serving such communities, running a successful business can be an immense social good. Due to this, the SBA wants to help these businesses so that they can flourish.
In this post, we’ll explain what SBA Community Advantage Loans are and how you can apply for them.
What Does “Mission Focused” Mean?
Community Advantage Loans are mission focused and place special emphasis on high-need areas. For example, urban inner-cities often lack access to resources. Similarly, some rural areas can also face similar challenges. That’s why Community Advantages Loans have been set up to support businesses operating in such disadvantaged communities.
Businesses often struggle to establish themselves in downtrodden communities. High crime rates, low purchasing power, and other challenges make it difficult for businesses to succeed. With Community Advantage Loans, the SBA is hoping to increase success rates. As businesses thrive, they will hire more people and provide more resources to the area that they’re based in.
SBA Community Advantage Loan Quick Facts
Let’s look at some of the key attributes of an SBA Community Advantage Loan:
- SBA Community Loans are currently in the pilot phase. The SBA is testing their effectiveness.
- These loans go up to $250,000 dollars.
- The SBA will guarantee up to 85 percent for funds at $150,000 or below, and 75 percent for all loans greater than $150,000.
- The SBA places special emphasis on startups struggling to secure funding elsewhere.
Payment and Interest Rate Terms for SBA Community Advantage Loans
Since SBA Community Loans are guaranteed by the government, interest rates are often lower than other financing options. This is because risks are limited for the lender. Typically, interest rates for an SBA community loan are set between 8 to 11 percent.
Maximum interest rates are set at the Prime Interest Rate + 6 percent. The United States Prime Rate was set at 4.5 percent as of December 31, 2017. This means that the maximum interest rate for an SBA Community Advantage Loan would have been 10.5 percent. This is quite affordable for a business loan.
The total amount provided by the Community Advantage loan cannot exceed $250,000. For working capital, maturity is typically set at 10 years. For machinery, maturity is set at either 10 years or the useful life of the equipment purchased. For real estate, the loan maturity can be set for up to 25 years.
Specific Qualifications for SBA Community Loan
To qualify for an SBA loan, the borrower must meet the following requirements. Please note, meeting the requirements does not guarantee approval.
- Be a for-profit business.
- Be a small business, meaning under 500 employees and $15 million in assets.
- Conduct business in the United States.
- Business owners must have invested equity.
- Must not be involved in certain industries, such as adult entertainment and political activities.
Typically, the SBA provides funding to small businesses that have applied for traditional small business loans, but have been rejected. To qualify for a Community Advantage Loan, you may need to prove that you applied for funding elsewhere but were unsuccessful.
How to Apply for an SBA Community Advantage Loan
Community Advantage Loans are provided through community-based lenders that will assess you in the same way that they would evaluate any business loan. Factors that will likely be examined are:
- Your personal credit score and business credit score.
- Current debt levels and payment history.
- Business revenues and profits.
- Your business vision and growth plan.
Need help finding an SBA approved community lender? The SBA offers an easy-to-use Lender Match tool. Simply click on the link and fill out the forms.
SBA Loans Aren’t Your Only Option
The SBA is a great resource for small business owners. They offer a variety of resources besides financing, so make sure you peruse their website and consider your needs.
Not everyone will qualify for a Community Advantage Loan, however. Even among those that do, not everyone will be approved.
Even if you are approved, the funding might not be enough. Fortunately, there are a variety of other financing options available. Traditional small business loans, merchant cash advances, and credit cards are some of the more popular options.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.