Taking Advantage of Community Advantage
In 2011, the SBA unveiled Community Advantage, a pilot loan program that provides mission-oriented non-profit financial intermediaries with 7(a) loan guaranties for loans of $250,000 or less. It’s a potential game changer, but the roll out is slower than expected. Notes from the session follow:
The SBA Community Advantage program fills an important gap for lending in the $50,000-$500,000 range. The program opens up CDFI’s to CRA money and secondary market capital.
Bank of America has a just in time, only borrow when you need it product for Community Advantage lenders (sounds like a line of credit).
The Community Advantage program is a pilot program and the participants want it to be made permanent.
Referral programs need to improve
7(a) guarantee won’t solve all problems, as many clients don’t fit.
It’s only a guarantee, the lender still needs to find capital and create a strong balance sheet. CARS is one tool to measure that.
Organizations have a capacity issue. They need to know how to
- pre-qualify loans,
- underwrite loans,
- settle the loans the way the SBA wants, and
- collect on loans.
The SBA is working on a training, potentially on June 30, 2012.
Obstacles/growing pains include
- efficiency in the internal process
- other loan products don’t require as much documentation
- labor intensive
- SBA process is lengthy – takes 3 weeks, and
- SBA compliance has a steep learning curve.
The Community Advantage capital is not as financially attractive as the micro loan program (the capital is better.)
The program has been made easier over time, but if you can’t sell it on the secondary market, it’s not worth it. You have to put up a lot of reserves to access the program.
You need to do a lot of community advantage loans to make sense.