CDC Small Business Finance (CDC) was recently one of six initial mission based lenders selected to participate in the SBA 7a program entitled Community Advantage. This program, which has a mirror component for banks called “Small Loan Advantage”, allows mission-based small business lenders access to the SBA guaranty. The program is designed to target underserved markets, including businesses located in low-moderate income communities and designated improvement areas such as HUBZones and Enterprise communities. However, location in one of these zones is not a requirement to receive a loan.
What does this mean to small business owners in California, Arizona and Nevada? Businesses can now apply for a loan in the $50-250,000 range from CDC for funding through the Community Advantage program. This program is ideal for businesses that meet SBA criteria and have the capacity to repay the loan, but do not meet the credit requirements of a traditional bank.
Based on its projections, CDC will fund approximately $8 to $10 million in projects in the first two years of operations. To meet that demand, the organization secured a Line of Credit for the guaranteed portion. CDC was also approved to sell the loans in the secondary market, allowing it to re-capitalize. The loan guarantee in the program is 85% for loans under $150,000 and 75% for loans between $150,000 and $250,000.
The projects that CDC will finance are going to be ones that are SBA eligible, but do not meet the credit requirement of traditional financial institutions. For example, CDC will approve loans with limited collateral value (provided we do take all available collateral), if repayment of the subject loan is reasonably assured based on the cash flow from the small business. CDC will also approve loans based on cash flow of 1.0x or greater whereas a bank’s conventional policy is typically 1.20x or even higher. CDC will lend to individuals or companies with past bankruptcies provided there are sufficient mitigating factors. CDC will not outright decline a loan for a prior bankruptcy. Finally, CDC will lend to any industry as long as it is an eligible industry per SBA.
Deal flow will come from partnerships with banks which can refer SBA eligible projects that do not fit their credit model. CDC is also establishing partnerships with business organizations that focus on working with businesses located in low-moderate income communities. Further, CDC will continue to work with its traditional partners; SBA intermediaries such as SCORE, SBDC’s and Women Business Centers.
For more information or to apply today please email Robert Villarreal at firstname.lastname@example.org.Article by Robert Villarreal, Senior Vice President at CDC Small Business Finance