Finding the right funding source to launch a new business can be a complicated process. Every small business will need some form of financial resource, but finding the right loan can take time. Whether it’s for company acquisition or the hiring of the necessary staff, a business loan can transform the potential of any business venture. Community Advantage Loans could be the solution that you’ve been looking for. A Community Advantage Loan is not suitable for every business but could be the key to sourcing the necessary funding to launch your venture. These highly affordable loans have strict criteria, so here’s everything you need to know.
What is a Community Advantage Loan?
Specifically, these are loans which are guaranteed by the federal government and most commonly administered via local, community-based organizations and lenders. This makes them an affordable and safer option than standard commercial loans. They allow you to borrow between $50,000 and $250,000, and with the low interest rates (usually between 7% and 9%) and lengthy maturities of between seven and 10 years, they are a much-underused funding resource.
However, the key criteria is that your business must be created in order to benefit an underserved community.
In communities that are sorely lacking in amenities, these loans can help to generate local cash-flow, as well as create employment possibilities.
One of the terms that applicants for Community Advantage Loans see often is the phrase ‘mission-focused.’ This is not a term that traditional commercial loans use and can be the cause of some confusion. That’s because Community Advantage Loans are explicitly aimed at those businesses that are providing a service to a high-need location.
Inner cities and remote rural areas are usually the principal beneficiaries of the granting of a Community Advantage Loan.
By supporting those businesses that are located in a disadvantaged community, these loans can help establish a business that might otherwise struggle due to poor local economies. For those areas with high crime rates and commonly low purchasing power, local businesses can struggle to gain a foothold or any long-term security. These loans have been designed to help local communities via resources and employment possibilities.
To qualify for a Community Advantage Loan, you will need to be a for-profit business model. You will also have to be confirmed as a small business. Your number of employees (under 500), and the total value of your business assets determines this status. What’s more, those assets must be less than $15million.
Additionally, Community Advantage Loans are not just aimed at those aiming for a new business launch. Even established small businesses that are already up and running can be eligible as well. Many business types do not qualify for these loans. Those include (but are not limited to):
- Businesses in the adult entertainment industry
- Religious organizations
- Political groups
Qualifications for a Community Advantage Loan
The process of securing any SBA loan can be lengthy. It is very easy to spend a lot of time and energy on making an application, only to find that you are not eligible. Make sure that you fit the following criteria before you start the process.
- US-Based – Your small business must be based in the United States. Concerning location, you must limit your operations to the local community set out in your business plan.
- Credit History – From a commercial loan to an interest only business loan, no creditor is going to approve you without looking at your credit history. Community Advantage Loans are no different. Your credit report will need to be strong if you want approval. However, this loan type has lower demands on your credit score, and the SBA can approve your loan even if your score is lower than 600.
- Your Skills – Your application can fail if there is an indication that you will not be competent at running your business. The SBA will examine your experience in the field, your awareness of the potential market, as well as your education and knowledge of your chosen industry.
- Future Plans – Lenders involved with the Community Advantage Loan scheme will want to see your business plan. While examining this, they will be looking at how you envision your future. You will need to make sure that your plan involves strategies and forecasts for the next two, five, ten, and even twenty years. Your projections need to be realistic and achievable, with a firm vision of how you are going to manage your growth.
Community Loans are managed through the SBA, which means that they are a loan type that is guaranteed by the government. This is why their rates remain lower than other interest rates for business loans. Due to limited risks on the part of the lender, since their loan is guaranteed federally, interest rates are generally between 8% and 11%. Maturity is also more flexible. Usually, this is set at ten years, although if you have used your Community Loan for equipment financing, then your timeline may be extended to cover the lifespan of that equipment. However, if you are planning to use your loan for the purchase of real estate, then you may have repayment times of up to 25 years.
Community Loans or SBA 7(a) Loans?
The SBA provides a wide variety of loan options, and the SBA 7(a) loan is one of the most popular choices. That’s mainly because the amounts that can be borrowed are significantly higher. SBA 7(a) Loans can grant up to $5 million, which makes them a smart choice for those businesses hoping to arrange a loan of around $250,00. It’s worth noting that if you do not qualify for either a SBA 7(a) Loan or a Community Advantage Loan, you may still be eligible for an SBA Microloan. Always look at your requirements when deciding which loan is the most suited to your business and your location.
If your business is going to be of benefit to an underserved community, then an SBA Community Advantage Loan is worth investigating. Talk to your local SBA office and work through the facts together. They will be able to guide your application and ensure that the always lengthy application process runs as smoothly as possible.