“Community Advantage is a perfect example of how the last Administration weaponized government programs to tip the scale against deserving small businesses and toward preferred groups and political allies, even when it meant greater risk to American taxpayers,” says SBA Administrator Kelly Loeffler. “This Administration is putting a stop to reckless lending experiments and restoring safeguards to protect both taxpayer dollars and the integrity of the 7(a) loan program for America’s entrepreneurs.”

The New Community Advantage Standards:

• A minimum of 60 percent of the number of CA SBLC loans closed must meet the underserved market requirements previously in place for the CA Pilot Program, which sunset on October 31, 2023. 
• CA SBLCs with five or fewer years of participation in the program shall maintain a loan loss reserve of 5% of the outstanding amount of the unguaranteed portion of the loan portfolio of the CA SBLC under the program. CA SBLCs with more than 5 years of participation in the program shall maintain a loan loss reserve equal to the average repurchase rate of the CA SBLC over the preceding 36-month period.
• Capital Requirements: Effective immediately every CA SBLC must maintain, at a minimum, unencumbered paid-in-capital and paid-in surplus of at least $375,000, or 10 Percent of the aggregate of its share of all outstanding loans, whichever is greater. This increases to $750,000 in 2026.
• A CA SBLC is expected to sustain a sufficient level of lending activity in its lending area, which means originating at least four 7(a) loan approvals during two consecutive fiscal years.
• CA Lenders are required to pay fees to cover the costs of reviews, examinations and other lender oversight activities.

From the SBA Announcement:

As a program built on a network of unregulated non-depository lenders, Community Advantage generated a 7% default rate over the last 12 months – more than double that of the overall 7(a) loan portfolio. Additionally, the portfolio is disproportionately stressed, with multiple lenders generating early problem loan rates above 30%.

Community Advantage began as a pilot program under the Obama Administration when the SBA licensed a constellation of non-bank, non-regulated organizations to distribute the funds, including nonprofits and fintechs. Understanding the risk of this arrangement, the Trump Administration issued a moratorium on the approval of new Community Advantage lending licenses in 2018.

However, in 2023, the Biden Administration revived Community Advantage and approved more than 140 new, unregulated lenders for the program, selectively certifying groups including “The Progress Fund,” “PeopleFund,” and “Black Business Investment Fund.” It then attempted to increase the loan limit for the program from $250,000 to $500,000 – or up to $2 million to fund climate-related projects in support of the Green New Scam.

The SBA has reinstated the moratorium on the approval of new Community Advantage lending licenses. Additionally, among other mandates, the new SOP will require existing lenders to dramatically increase their capital reserves as a condition for continued program participation – to mitigate the taxpayer risk and high default rates associated with “mission-based lenders” operating outside the federal banking regulatory system.

Source: SBA Policy Notice 5000-868068

SBA Loan Construction Tariff, Labor Pool Risk Management, & the New SOP 5010 8 — Webinar Today @ 2PM ET

Join construction risk management expert Kyle Gustafson as he discusses important factors for you to consider in underwriting, closing and funding your SBA 7(a) and 504 loan construction loans. And that projects are completed on time and within budget.

Done correctly, construction lending is an excellent product niche for the SBA lender. Unfortunately, failed construction projects blow up spectacularly and leave the lender scrambling for payment of the guaranty from SBA.

Read more and register here

SBA Underwriting with SOP 5010 8 After Elimination of the “Do What You Do” Rule — Webinar 5/22

SBA’s new SOP 5010 8 (effective June 1, 2025) reimposes lender underwriting guardrails and promises a return to, in the words of SBA, “time-tested, prudent lending policies SBA lenders should be familiar with.” Also included are all SOP changes implemented since the last published 5010.

Lance knows SBA and will focus on the important material that you will be using every day to ensure your compliance with SBA regulations and preserve your SBA loan guarantee.

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