What You Need to Know about SBA Community Advantage Loans
It is important to understand the advantages and disadvantages to benefit from SBA community advantage loans.
SBA loan programs come across everyone researching their small company financing choices. These loans, with a portion of the government’s backing, provide some of the finest conditions and rates. The Small Business Administration (SBA) created an experimental program called Community Advantage (CA) SBA loan program to assist firms in underserved areas that would not be eligible for a conventional loan.
In contrast to traditional SBA 7(a) loans, the CA loans program collaborates with lenders with a specific aim to provide business owners with credit, technical, and managerial support. In this article, we will discuss SBA Community Advantage loans in detail. We will go over the benefits of SBA Community Advantage loans, the eligibility criteria of SBA Community Advantage loans, and how you can apply for SBA Community Advantage loans.
What is an SBA Community Advantage loan?
Some categories of small companies in need of working capital, equipment finance, or real estate may get up to $250,000 in funding under the SBA Community Advantage loan program. This Small Business Administration (SBA) loan is available via partner lenders. It is intended for startups, veteran-owned firms, and those in underprivileged areas that might also benefit from managerial and technical support.
How does the SBA Community Advantage loan work?
Small companies may get more inexpensive funding from authorized lenders with an SBA Community Advantage loan. In the unusual event that your company fails, the SBA guarantees the lender that it will return 75% to 85% of your loan. Lenders may then provide firms loans up to $250,000 with durations of up to 25 years and prices no greater than the prevailing prime rate plus 6%; finance they would not otherwise be eligible for.
To offer SBA Community Advantage loans, lenders must supply at least 60% of the program’s funding to underserved communities. This includes veteran-owned companies, businesses that have existed for under two years, and those in rural regions or low- to moderate-income neighborhoods. The organizations that educate the technical and managerial skills required to operate a firm are also provided by lenders, or they might recommend them to those enterprises.
The SBA 7(a) lending program, which is much broader, includes the SBA Community Advantage loan. The maximum loan amount is one of the main differences between the two programs; Community Advantage has a ceiling of $250,000, while SBA 7(a) loans have a limit of $5 million. Additionally, the highest interest rate cap for SBA Community Advantage loans is 6% over prime, against the ceiling of 4.75% over prime for 7(a) loans. Both loans, however, have comparable conditions for repayment.
Small company entrepreneurs may use the SBA Community Advantage loans for various commercial objectives, including:
- Operating capital
- Purchasing a property
- Purchase of stock.
- Renovation work
- Refinancing of debt
Benefits of SBA Community Advantage loans
It is important to understand the advantages and disadvantages to benefit from SBA community advantage loans. Here’s a list of advantages:
- Long repayment durations and cheap interest rates are present.
- The terms are more lenient than those for regular SBA loans.
- Just about anything may be paid for with the loan.
- Startups, companies with fair credit, and businesses operating in traditionally “risky” sectors like the food and beverage industry would make all profits substantially.
- It’s perfect for businesses that have been denied finance from other sources.
- This is perfect for businesses run by women, people of color, or veterans.
Drawbacks of SBA Community Advantage loans
Now that you know the advantages, let’s look at some of the disadvantages of SBA Community Advantage loans:
- Less financing than other SBA loan programs and other alternative financing options.
- It involves an extensive application and necessitates a long time to finance.
- It cannot be used as an open-ended credit line.
- A personal guarantee or collateral is needed.
SBA Community Advantage Loan Payment Terms
Below is a table summarizing the payment terms, interest rate and fees of the SBA Community Advantage Loans:
|Available Amount||Up to $250,000|
|SBA guarantee||85% for up to $150,000 and 75% for more than $150,000|
|Rate of Interest||< Prime rate of interest + 6%|
|Repayment term||Working capital/Equipment < 10 years
Real Estate < 25 years
|Uses||Several uses for corporate operations|
|Fees||No SBA guarantee fee
Third-party Fees < $2,500
|Collateral needed||Yes, for loans > $25,000|
|Personal Guarantee||Yes, for owners with <20% stake in the business|
Eligibility criteria for SBA Community Advantage loan
Although the SBA has specific loan eligibility requirements, others may vary depending on the SBA Community Advantage Program lender you’re dealing with. Keeping this consideration, let’s go through the standard SBA loan program criteria and the requirements of the SBA Community Advantage program.
- General requirements – It would be best if you met the following conditions generally to be qualified for the SBA loan program for Community advantage:
- Business must be for-profit, operating in an approved sector in the US.
- It must meet the SBA’s definition of a “small business”.
- The typical sources of finance must have been used up.
- Applicants must have invested their cash and effort in the business.
- They must be able to prove their capacity to repay the loan and their “good character”.
- Have never missed a payment on a firm loan that the government guaranteed.
- Specific requirements – Here’s the list of specific requirements for SBA Community Advantage loans:
- A credit score – of more than 140 (lenders may set a different number)
- Time in business – most lenders require more than two years. However, the program doesn’t mandate any time in business.
- Financial reports – Most SBA programs require proof of profitability, but this SBA loan program is more flexible.
- Business valuation – SBA mandates business valuation only for a loan of more than $250,000. So most borrowers don’t need one. However, an independent business valuation is a must if there’s a close relationship between the lender and the borrower.
How to apply for an SBA Community Advantage loan
Applications for SBA Community Advantage loans are intended to be simpler than applying for other SBA loan programs. If all material is provided in one bundle, there are minimal forms to complete, and the underwriting process is a little quicker than with other SBA loan programs. The following information is typically required when applying for an SBA Community Advantage loan:
- SBA form 1919 – borrower information form – It gives the description and background of your company, its owners with 20% or more stake, and any important personnel.
- Business financial reports and tax return – In addition to estimates for up to three years, you’ll need to supply historical financial data going back three years if available. Before submitting your application, inquire with your lender about their expectations for company predictions.
- Personal financial statements and tax return – All proprietors who hold at least 20% of the firm must provide personal financial statements, typically in the SBA Form 912, and their most recent three years’ worth of tax returns.
- SBA form 2499 – community advantage addendum – You must fill out this form with details regarding the kind of aid and counseling your company has previously received and the agencies that offered it.
Get a business valuation for an SBA community advantage loan with Eqvista!
Unless your SBA loan program offers more than $250,000, getting a business valuation is not a requirement. However, SBA clearly states that any relationship between the buyer and the seller requires a compulsory business valuation from an independent valuation expert. Additionally, the SBA community advantage loan application process is simpler than other SBA loan programs. However, any mistake in submitting the documents or details in the forms mentioned above can delay the process. A business valuation report can ensure the information’s accuracy and availability. Get the valuation of your business done by Eqvista, a team of NACVA-certified valuation professionals who use approved valuation methods to assure safe harbor compliance. To qualify for an SBA community advantage loan, get in touch with us to learn more about our valuation services.