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SBA Advantage Loan Program: Strengthening Businesses in Underserved Markets

SBA Community Advantage (CA) loans help small business owners overcome financial difficulties especially those who are unable to get traditional loans. Community Advantage loans fall under the SBA 7(a) loan program and are designed for small businesses that cannot meet the strict requirements of conventional lenders.

This encompasses startups, new ventures, veteran owned businesses, and enterprises situated in economically impoverished areas. The main goal is to stimulate economic growth in neglected communities by offering easy to access and low cost financing options.

by | Jun 2, 2024

How SBA Community Advantage Loans Empower Communities

CALs are the main factor that empowers the local and rural communities by creating the possibility of getting the necessary capital for small businesses. With their financial aid, CALs are the key to economic growth, the creation of jobs and the improvement of the living standard in the areas that are not well-served.

Let us discuss the ways Community Advantage Loans SBA can be applied to boost local and rural communities based on actual data and statistics.

Understanding Loan-to-Value Ratio in ABL

Job creation and economic growth

SBA data indicates that small businesses are major job creators, as they are responsible for creating about 64% of new jobs in the United States every year. In rural areas, where the chances of getting a job are quite low, small businesses play a vital role in the development of the economy.

Community Advantage Loans give the opportunity to the entrepreneurs in the rural communities to start or to expand their businesses, which will lead to the job creation and economic diversification. For every $1000,000 loaned through SBA loans, 3 to 3.5  jobs are created, depending on the industry sector and local economic conditions.

Support for underserved markets

Rural communities usually have difficulties in obtaining traditional financing options due to reasons such as the lack of banking infrastructure and the low population density. 

The Federal Reserve says that almost 22 % of the rural counties in the United States do not have a community bank branch, thus it is hard for the small businesses in these areas to get loans.

Community Advantage Loans are the answer to this problem as they provide financing solutions that are suitable for the needs of the underserved markets. In 2020, more than 70% of CAL borrowers were situated in low to moderate income areas showing the program’s focused on the disadvantaged communities

 

Benefits of Opting for ABL Loans

Empowering small businesses:

Minority-owned businesses are the key players in the local economies, but they usually encounter the systemic obstacles of getting the capital. As per the Minority Business Development Agency, small business owned firms are three times more likely to be denied loans than non-minority-owned firms.

Community Advantage Loans solve this problem by having flexible eligibility criteria and services that are designed for the specific needs of minority entrepreneurs. Bankrate states that Hispanic applicants received only 8.5% of the $27 billion SBA 7 (a) funding in 2023 compared to 42% for white applicants. 

Therefore, in Hispanic and Black communities CAL is a much needed boost to fill this financing gap.

Improving access to healthcare and essential services

In rural areas, access to healthcare and essential services is usually restricted, which in turn affects the residents’ quality of life and overall health. Small businesses are key players in tackling this issue by providing vital services like healthcare, grocery stores and pharmacies. 

Community Advantage Loans help entrepreneurs set up or grow businesses that will address these important needs in rural communities.

The economic advantages of SBA loans are numerous, including the fact that they help small businesses to survive and grow.

Unlike traditional loans, which usually impose rigid eligibility requirements and strict approval procedures, SBA Community Advantage loans are more inclusive.

Mission based lenders, usually non profit organizations deeply rooted in their communities, manage these loans, which are designed for the special needs of small businesses operating in different sectors.

Through the SBA’s guarantee, lenders can provide credit to businesses that otherwise would have difficulty getting funding, thus, encouraging entrepreneurship and job creation in underserved areas.

The main feature of SBA Community Advantage loans is their flexibility. Although the loans are guaranteed by the SBA, the rates, terms, and conditions are set by the lenders participating in the program, thus, allowing the customization of the loans according to the specific needs and circumstances of each borrower.

This flexibility is especially advantageous for small businesses with different capital needs which can access a wide variety of financial products that suit their growth objectives. Businesses can use CAL loans for:

Commercial Real Estate: Buying or rebuilding of commercial properties, which in turn helps business growth or move to a new location.

Equipment and Machinery: Financing the purchase of the necessary equipment and machinery which will improve operational efficiency and productivity.

Inventory: Buying inventory and raw materials, to make sure that the stock levels are enough to satisfy the customer demand.

Working Capital: The grant money can be used to pay for daily operational expenses, manage cash flow fluctuations, and seize growth opportunities.

Business Expansions: CAL can pay for projects that involve scaling operations, entering new markets, or starting new product lines or services

Renovations: The money can be used to fix old businesses, improve the facilities, and improve the overall customer experience.

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Loan Limits and Guarantees

The SBA Community Advantage loan program gives loans up to $350,000. Thus, small businesses can acquire the essential capital for different purposes. Loan amount can vary, therefore, the SBA will guarantee a percentage of the loan to reduce the risk for the lenders.

For loans up to $150,000, the SBA guarantees up to 85%, and for loans of more than $150,000, the guarantee percentage decreases to 57%.

The interest rates for SBA Community Advantage loans are set by individual lenders but are subject to the maximum limits that the SBA has set.

Approved Lenders for SBA Community Advantage Loans

Factoring vs Tangible Assets

Certified Development Companies (CDCs): CDCs are specific lenders that focus on the economic development of their communities. They provide financing assistance for small businesses, especially in real estate and long-term investments. CDCs offer personalized help and access to the resources necessary for businesses looking for sustainable growth.

Microloan Program Intermediaries: Microloan program intermediaries are experts in the field of offering small scale loans to startups and micro-enterprises. These lenders target the needs of the underserved entrepreneurs who may not be eligible for the traditional financing.

Intermediary Lending Pilot (ILP) Program Intermediaries: The ILP program intermediaries are the innovative lenders going through the pilot programs that are designed to widen access to capital for the underserved communities. These lenders make use of the alternative lending models and technology-driven solutions to reach a wider range of small businesses. 

Non-Federally Regulated Community Development Financial Institutions (CDFIs): CDFIs, which are certified by the U.S. Treasury Department, are mission-driven financial institutions that are dedicated to serving the low-income and marginalized communities.

These lenders prioritize community development and social impact and thus offer a complete approach to financial services. CDIs provide one-on-one advice, financial education, and loan products that are specialized for every borrower.

Through collaboration with CDFIs, small businesses can access financing solutions that are not only inclusive and equitable but also support their long-term prosperity and empowerment.

Eligibility Criteria for Community Advantage Loans

Understanding Account-Based Loans - ABL Loans

Small businesses must meet specific eligibility criteria to be eligible for Community Advantage Loans. Let us investigate the requirements to check if your business qualifies for SBA Community Advantage loans.

Small businesses operating in an underserved market

The main eligibility requirement for the SBA Community Advantage Loan Program is that the business is in an underserved area. This program is a component of the Community Advantage Loan Pilot Program and can be applied through community advantage lenders.

Besides, the program also has fees that are applicable. Hence, the business should be situated where access to traditional financing options for underserved businesses may be restricted. The Community Advantage lenders joining the pilot program of the SBA Community Advantage Loan can give the needed funds, helping the small businesses in the underserved communities to grow and prosper.

Tangible net worth and average net income restrictions

A vital condition for Community Advantage Loans is that the business should meet the maximum tangible net worth and average net income limits. These restrictions are determined by the Small Business Administration (SBA) and change according to the size of the business and its industry. 

The limits of the SBA Community Advantage Loan should be carefully examined to make sure that your business is within the range that has been set for it.

Navigating the Due Diligence Process and Associated Costs

Industry exclusions

Although a lot of small businesses can benefit from Community Advantage Loans, it is necessary to point out that some industries are not eligible for the loans. The SBA has determined the sectors that are not eligible for this loan program because of multiple reasons, like their risky nature or the fact that they do not fit the program’s goals.

The list of the industries that are not eligible for the SBA Community Advantage Loan may include, for instance, speculative real estate ventures, money laundering ventures, and life insurance companies among others.

Through providing capital to small businesses, CALs boost job creation, support underserved markets, encourage diversity in entrepreneurship and improve access to essential services.

Flaney Capital will help you with the SBA loan application while connecting you with the low interest lenders. Start the journey of financial prosperity and security by working with us today!

Contact us at 1-888-822-0844.

 

 

 

 

 

 

 

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Are you ready to take your business to new heights? Discover the power of the SBA Business Industry Program. With its comprehensive eligibility criteria, underwriting requirements, and loan guarantees, this program provides accessible and affordable loan options for businesses in rural areas.

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FAQ

Here are some answers to Frequently Asked Questions.

What are the main advantages of ABL loans?
ABL loans allow companies to use their existing assets as collateral for financing, providing greater flexibility than traditional lending methods.
Are there any risks associated with ABL loans?
Yes, if a business cannot repay its loan, the lender may seize the assets used as collateral. Businesses need to understand this risk before opting for an ABL loan.
How does accounts receivable factoring work for ABL loans?
In accounts receivable factoring within the context of ABL loans, a business sells its outstanding invoices (accounts receivable) at a discount to obtain immediate cash.
What is involved in the due diligence process for obtaining an ABL loan?
The due diligence process typically involves assessing a company’s financial health, including reviewing its balance sheet, income statement, and cash flow statement, among other things.
Can all types of companies apply for an ABL loan?
While any company can apply for an ABL loan, it is particularly beneficial for those with a high volume of accounts receivable or significant tangible assets.