SBA Community Advantage Loan: What It Is & How To Apply

The SBA Community Advantage loan offers up to $250,000 in financing to some types of small businesses in need of working capital, equipment financing, or real estate. Offered through participating lenders, this Small Business Administration (SBA) loan is designed for newer businesses, veteran-owned businesses, and those in underserved communities that could also benefit from management and technical assistance.

How SBA Community Advantage Loans Work

With an SBA Community Advantage loan, small businesses can get more affordable financing from participating lenders. The SBA provides a guarantee to the lender that it’ll repay 75% to 85% of your loan in the unlikely event that your business fails. Lenders can then provide businesses with financing of up to $250,000―that they might not otherwise qualify for―with terms up to 25 years and rates no higher than the current prime rate plus 6%.

To provide SBA Community Advantage loans, lenders need to offer at least 60% of the program’s financing to underserved markets. This includes businesses that are either veteran-owned, in operation less than two years, in rural areas, or located in low- to moderate-income communities. Lenders also provide or can refer those businesses to organizations that’ll teach management and technical skills necessary to run a business.

The SBA Community Advantage loan is part of the larger SBA 7(a) loan program. One primary difference between the programs is the maximum loan amount, with SBA 7(a) loans having a limit of $5 million compared to Community Advantage’s limit of $250,000. SBA Community Advantage loans also have a slightly higher interest rate limit of 6% over the prime rate, compared to the maximum of 4.75% over the prime rate with 7(a) loans. However, both loans offer similar repayment terms.

SBA Community Advantage Loans At a Glance

SBA Community Advantage Loan Eligibility

Under the SBA’s traditional loan requirements, most small businesses as defined by the SBA are eligible for the Community Advantage Loan. SBA Community Advantage loans can be used for almost any business purpose, including working capital, equipment financing, and real estate, like an SBA 7(a) loan.

To qualify for an SBA Community Advantage loan, your lender must be reasonably assured that your business will be able to repay the loan. This includes a mix of business and personal credit, along with sufficient business experience. The requirements you need to meet to qualify for an SBA Community Advantage loan include:

• Cash flow: There’s no specific requirement, but a 1.25x DSCR is a good starting point.
• Down payment: This must be 10% or more, including existing businesses, startups, and changes of ownership. This down payment can be called an equity contribution, an investment in the business that demonstrates owners are putting money into the business as well.
• Collateral: Loans over $25,000 must be fully collateralized by a first lien on all financed assets and additional liens on all fixed assets and real estate up to the loan amount.
• Personal guarantee: This is required from all owners with at least 20% ownership.
• Management experience: Depth and length of management experience in the business and industry are considered.
• Business size: You must meet the SBA small business requirements—typically less than 150 employees with annual revenue below $750,000 to $38.5 million, depending on the industry.

In addition to these requirements, lenders consider your personal and business credit. If you have a personal credit score of at least 620 and your business credit score is at least 140, you may be approved for financing. These credit benchmarks are easier than what’s required for SBA 7(a) financing.

SBA Community Advantage Loan Rates and Fees

The costs of an SBA Community Advantage loan are regulated by the SBA to ensure that higher-risk borrowers from disadvantaged communities can get access to affordable financing options. The typical costs you’ll incur for an SBA Community Advantage loan are:

• Maximum interest rate: Prime interest rate plus 6%
• SBA loan guarantee fee: None
• Third-party fees: Up to $2,500

The maximum interest rate on Community Advantage loans is higher than what you would pay for an SBA 7a loan. However, it’s much lower than the 30% and higher than some online lenders may charge. Rates typically are fixed, and the starting rate may not exceed the current prime interest rate plus 6%. Additionally, your lender may charge fees up to $2,500 for processing and underwriting the loan. The SBA’s loan guarantee fee doesn’t apply to Community Advantage loans.

SBA Community Advantage Loan Terms

The largest SBA Community Advantage loan you can get is $250,000. While the minimum can be as small as needed, for loans smaller than $50,000, most Community Advantage program lenders will instead offer an SBA Microloan. The terms for an SBA Community Advantage loan are:

• Loan amount: Up to $250,000
• Repayment term: Up to 10 years for working capital or equipment and up to 25 years for real estate.
• Repayment schedule: Monthly

Although you can qualify for multiple Community Advantage loans, your total loan portfolio cannot exceed $250,000 at any point.

How to Apply for an SBA Community Advantage Loan

The process of applying for an SBA Community Advantage program is designed to be easier than it’s for other SBA loan applications. There are fewer forms involved and the underwriting time is a bit faster than with a 7(a) loan if all paperwork is submitted in one package. When you apply for an SBA Community Advantage loan, you’ll typically need to provide:

• SBA Form 1919 – Borrower Information Form: Description and history of your business, its owners (20% or greater), and any key employees.
• Personal financial statement & tax returns: You’ll need to provide personal financial statements, often via SBA Form 912, and the last three years of tax returns for all owners with at least 20% ownership in the company.
• Business financial statement & tax returns: You’ll likely need to provide three years of historical financial information if it exists, along with projections for up to three years. Talk to your lender prior to applying regarding their specific requirement for business projections.
• SBA Form 2449 – Community Advantage Addendum: You’ll need to complete this form with information about the type of assistance and counseling your business has received in the past and the organizations that provided it.

Where to Get SBA Community Advantage Loans

There are 40 active lenders offering SBA Community Advantage loans. Approved lenders include community development corporations, SBA authorized microloan providers, and community development financial institutions. Although some lenders offer an online application, typically you’ll need to contact their office directly to start the application process.

The lenders with the largest geographic reach are Accion and LiftFund, serving the East Coast and Sunbelt regions respectively. Most SBA Community Advantage lenders only serve a specific state or geographic region, so when searching for a lender, make sure to include your location in your search.

Alternatives to SBA Community Advantage Loans

It’s possible that the SBA Community Advantage loan isn’t the best option for your business or is simply unavailable. There are other SBA programs and other financing options for which your business may be able to qualify. Some financing alternatives to SBA Community Advantage loans are:

• SBA Express Loan: SBA Community Advantage loans are a great option for many businesses, but if you don’t qualify or there’s no lender in your state that offers the loan, there are also SBA Express Loans, which are offered nationwide, up to $350,000 with terms of up to 10 years.
• SBA Microloan: Microloans are another great alternative to SBA Community Advantage loans. These loans don’t exceed $50,000 and are offered by the SBA, United States Department of Agriculture (USDA), and independent nonprofits. The microloan is designed for smaller businesses that may have difficulty qualifying elsewhere.
• Rollover for business startups (ROBS): If you need to finance your startup and have at least $50,000 in a qualifying retirement account, you may be able to use a ROBS to leverage those funds without taxes and penalties. The process is complicated but can be beneficial for your business. To ensure everything is handled correctly, we recommend using one of these top ROBS providers.
• Online business loan: If you need financing quickly and would like to handle everything online, there are alternative online business loans available to finance your business. However, keep in mind that unless you have a credit score of more than 700, rates for these loans are typically higher than similar SBA loans.

Bottom Line

SBA Community Advantage loans are a great option for small businesses and startups that can’t qualify for traditional financing. Funds can be used to support working capital, finance equipment, and finance real estate. Loans can last up to 25 years and are available up to $250,000. Approved SBA lenders can help you qualify, apply and, ultimately, get your business funded.