SBA Imposes Capital Requirements, Loan Loss Reserves on Community Advantage Lenders

May 20, 2025

Bob Coleman
Founder & Publisher

SBA Imposes Capital Requirements, Loan Loss Reserves on Community Advantage Lenders

Citing “lax oversight” and “alarmingly high rates of loan defaults,” SBA will require existing CA lenders to meet minimum equity requirements of $375,000, establish loan loss reserves of 5% and approve 4 loans a year to maintain their CA SBLC license.

“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… 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