The Small Business Administration (SBA) recently announced a new COVID-19 recovery program, the Community Advantage (CA) Recovery Loan Program, that allows eligible CA Lenders to provide technical and financial assistance to assist small businesses located in underserved areas, as defined by SBA.
CA Recovery Loans are to assist small business owners in retooling their business models for the COVID–19 environment and building financial resiliency against potential future disruptions. Loans can be approved through September 27, 2020, and must be fully disbursed no later than October 1, 2020.
The minimum loan term for CA Recovery Loans is five years and must be accompanied by at least 15 hours of technical assistance completed during the first six months of the loan term. To cover the cost of the technical assistance, SBA is allowing CA Recovery Lenders to charge an extraordinary servicing fee up to $2,500 or nine percent of the amount of the CA Recovery Loan, whichever is greater.
Using authority under Section 1112 of the CARES Act that allows SBA to provide debt relief to borrowers in the 7(a) (including the CA Pilot Program), 504, and Microloan Programs, the SBA will also pay six months of CA Recovery Loan principal, interest, and any associated fees, including the extraordinary servicing fee.
Only certain current Community Advantage lenders will be eligible to make CA Recovery Loans based on their loan volume, portfolio performance, and SBA lender reviews. CA Recovery Lenders can enter into agreements with other mission-oriented organizations (including CA Lenders that are not eligible to make CA Recovery Loans), as well as depository and non-depository financial institutions, to act as loan referral agents and/or packagers, but not for other services (such as underwriting) on CA Recovery Loans.
OFN is pleased to see the SBA leverage the CA program to channel critically-needed capital to small businesses. However, the program’s reach will be limited because it will only be available to a subset of CA lenders rather than utilizing the full lender network to reach as many businesses as possible. In addition, businesses owned by people of color and women are not included in the SBA’s current definition of underserved markets, making it even more challenging for these loans to reach some of the small businesses hit hardest by the pandemic.
The SBA is accepting comments on the Community Advantage Recovery Loan program through August 14, 2020. If you would like to weigh in or to learn more about OFN’s Community Advantage advocacy, contact Dafina Williams, SVP, Public Policy.