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Sarah George is a freelance writer who is passionate about helping small business owners understand the complexities of business loans. She has been featured in publications such as CBS, CNET, Finder and Reviews.com.
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Most recently before joining Bankrate, Robert worked as an editor and writer at The Ascent by The Motley Fool, covering a number of personal finance topics, including credit cards, mortgages and loans.
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According to the Federal Reserve’s 2022 Report on Firms Owned by People of Color, minority business owners are more likely to apply for conventional business loans. Yet a higher percentage of minority owners get denied traditional financing.
For example, 61 percent of businesses owned by people of color are denied by large banks and 55 percent are denied by small banks. Meanwhile, 51 percent of white-owned businesses get denied by large banks and 30 percent by small banks. The report shows that minority businesses are more likely to face financial challenges and need funding.
To make financing more accessible, SBA Community Advantage lenders often support minority-owned businesses, women, veterans and low-income communities through loan and mentorship programs. Let’s dive into how the specifics of Community Advantage loan program works.
The SBA created the Community Advantage loan pilot program to offer 7(a) loans up to $350,000 to underserved businesses. Businesses are usually in a financially at-risk community or may be startups or owned by minority business owners, women or veterans. These businesses might be denied for the standard 7(a) loan because many lenders tighten their criteria for SBA loans due to their capped interest rates and long repayment terms.
To serve these communities, the SBA CA program uses lenders that wouldn’t normally qualify to offer standard 7(a) loans, usually nonprofits with a mission to boost community development. The SBA recently extended the program’s expiration date to September 30, 2024, according to the Federal Register.
But as of April 2023, Community Advantage lenders can also apply to become a Community Advantage Small Business Lending Company (SBLC). This provides the lender with a license to serve disadvantaged communities under the 7(a) loan program on a nontemporary basis.
SBA Community Advantage loan statisticsAccording to the SBA 7(a) summary report, so far in 2023:
The SBA Community Advantage loan can be used for similar purposes as a standard 7(a) loan, including:
It offers many of the same perks as the 7(a) loan: competitive interest rates and long repayment terms. What to expect when you get this type of SBA loan:
The Community Advantage loan program follows the same rules and guidelines as the standard 7(a) program. While it’s designed to make 7(a) loans accessible to underserved business owners, not every business will qualify.
The Community Advantage loan requirements include:
In addition to these requirements, Community Advantage loans are available to businesses in:
These businesses won’t be eligible for a Community Advantage loan:
You can get Community Advantage loans through a variety of approved lenders, including:
Applying for an SBA Community Advantage loan takes a few extra steps to research because Community Advantage lenders aren’t common and they serve specific communities. How to get started:
The Community Advantage loan program was created to support underserved businesses that may not qualify for the standard 7(a) loan. You get the benefit of competitive interest rates and terms, and flexibility to use the loan for working capital or even international trade. The SBA also raises the loan amounts that don’t require collateral to $50,000, up from $25,000 maximum for the standard 7(a) loan program.
The other main benefit is that you get to work one-on-one with a mission-based lender focused on helping your business succeed. These Community Advantage lenders may provide education or mentorship programs to walk you through your business’s journey.
If you can’t get financed through the Community Advantage loan pilot program, you may be eligible for grants, including grants offered to minority businesses. You could also try alternative financing that widens the scope of businesses eligible to apply.
A Community Advantage loan is a type of SBA 7(a) loan offered under the Community Advantage loan pilot program. It provides loans up to $350,000 to underserved communities, such as businesses in low-income areas.
A CDFI loan is a business loan offered through a Community Development Financial Institution. CDFIs are certified by the CDFI Fund and are committed to developing the community, often offering education and other resources to support small business owners. They may lend to startups and underserved businesses that wouldn’t normally qualify with traditional lenders.
Arrow Right Staff Writer, Small Business Loans
Sarah George is a freelance writer who is passionate about helping small business owners understand the complexities of business loans. She has been featured in publications such as CBS, CNET, Finder and Reviews.com.
