What are SBA Community Advantage Small Business Lending Companies?

The need for accessible traditional small business loans is undeniable, especially in underserved communities. The Federal Reserve System’s Firms in Focus data revealed that 58 percent of white entrepreneurs who applied for financing were fully approved, while less than 40 percent of minority applicants were fully approved.

The U.S. Small Business Administration (SBA) designed the Community Advantage (CA) loan to bridge this gap. But this was a pilot program set to expire in 2024. To create a permanent solution, the SBA is creating Community Advantage Small Business Lending Companies (CA SBLCs). These SBLCs will transition out of the temporary pilot program and be licensed to provide regular SBA 7(a) loans to businesses in underserved communities.

We’ll review what a Community Advantage Small Business Lending Company is and how lenders can participate in this program.

What is an SBA Community Advantage Small Business Lending Company?

This year, the SBA opted to change its rules, lifting the moratorium on SBLCs and introducing the Community Advantage Small Business Lending Company (CA SBLC), which is a specialized lender approved by the SBA to administer regular SBA 7(a) loans.

CA SBLCs aim to expand access to capital for underserved communities, including women, minorities, veterans and people in low-income areas. Certain lending requirements limit access to traditional small business financing, but by focusing solely on credit score, business cash flow and collateral, these lenders can approve loans for underserved communities at a higher rate.

Lenders interested in becoming CA SBLCs must apply for the CA Pilot Program by September 30, 2023.

SBA CA Small Business Lending Company vs. SBA Small Business Lending Company

Both CA SBLCs and SBA Small Business Lending Companies (SBLCs) aim to support small businesses by making SBA loans, but the two lenders differ when it comes to licensing.

As an SBA SBLC, the lender can provide small businesses access to SBA loans, specifically 7(a) loans. SBA SBLCs can also provide loans to intermediaries that provide SBA microloans, which are smaller loans under $50,000. Applications for the SBA SBLC license are closed, but when a lender is approved for this license, they have the power to make more significant loan amounts because they utilize government guarantees in underwriting, which lowers risks for lenders as well as costs for borrowers.

A CA SBLC license is designed for Community Advantage lenders targeting businesses in underserved communities. These are CA lenders who participated in the CA Pilot Program on a temporary basis making SBA Community Advantage loans. With the new license, they will have permanent authority to make regular 7(a) loans.

How to become an SBA Community Advantage SBLC

Currently, the SBA is not accepting new applications for CA SBLCs. Instead, interested lenders can participate in the Community Advantage Pilot Program until September 30, 2023. Afterward, the SBA will work with lenders to transition them to permanent status as CA SBLCs.

Community Advantage SBLC requirements

In addition to applying for the Community Advantage Pilot Program, all lenders interested in becoming CA SBLCs must adhere to the SBA’s specific rules and guidelines, which include operating as one of the following types of organizations:

• Certified Development Companies (CDCs)
• Community Development Financial Institutions (CDFIs)
• Intermediary Lending Pilot (ILP) program Intermediaries
• Microloan program intermediaries

Lenders will also need to complete a Form 750 Loan Guarantee Agreement, which lays out the lender’s structure and operations to ensure compliance. CA SBLCs will have to maintain no less than 60 percent of their SBA loan portfolio in underserved communities.

• SBA underserved communities

  • Low-to-moderate income (LMI) areas
  • Rural areas
  • Opportunity Zones
  • Promise Zones
  • Empowerment Zones and Enterprise Communities (EZ/EC)
  • Historically Underutilized Business Zones (HUBZones)

  • Businesses in operation for under two years
  • Businesses with veteran ownership of 51 percent or more
  • Businesses in which over 50 percent of its full-time employees fall into the low-income category or live within LMI census tracts

Bottom line

When access to traditional small business loans is limited, Community Advantage Small Business Lending Companies can fill in the gaps. By applying to be a CA SBLC, lenders can provide access to capital and expand their support to businesses in underserved communities.

Frequently asked questions

• How can a lender become an SBA Small Business Lending Company?

  Becoming an SBA small business lending company (SBLC) requires the lender to purchase an existing SBLC or CA SBLC license or apply for a new SBLC or CA SBLC license.

• Who is the top SBA lender?

  Since 2018, the Huntington National Bank has consistently been the top SBA lender by loan amount. The lender looks to continue that trend through 2023 as it is currently once again the top lender, having provided over $1.6 billion in SBA 7(a) funding to small businesses.

• Who is the largest non-bank SBA lender?

  Newtek Small Business Finance is the largest non-bank SBA lender and currently the third-largest provider of SBA 7(a) loan funds in 2023.