Navigating SBA 7(a) Loans for LGBTQIA+ Business Owners

The United States, and the world at large, have started to show the LGBTQIA+ community the love and support they need to succeed. We still have a long way to go, but we’re leaps and bounds ahead of where we were 5, 10, 20, or 50 years ago. However, the problems facing LGBTQIA+ owned businesses is something that still needs addressing.

It was challenging (and sometimes impossible) for minorities to get access to capital in the past. Now, different small business lending programs across the US have emerged to help minority groups—like the LGBTQIA+ community—get fair access to the money they deserve. Giving LBGBTQIA+ owned businesses increased access to government funding is essential for ensuring marginalized groups can build sustainable wealth.

While there are no specific grants for gay business owners, the Small Business Administration (SBA) created the 8(a) Business Development Program specifically for disadvantaged small business owners. The 8(a) program doesn’t actually provide any loans. However, it increases your chances of qualifying for SBA loans and gives you access to limited-competition federal contracts.

If you’re a member of the LGBTQIA+ community looking for a government-backed loan, an SBA 7(a) loan will likely satisfy your needs. Even though LGBTQIA+ business grants do not exist yet, your business can obtain and use an SBA 7(a) Community Advantage Loan to grow.

SBA Community Advantage Loans for LGBTQIA+ owned businesses

The Community Advantage Loan Program falls under the SBA 7(a) umbrella. Community-based lenders administer these loans to entrepreneurs in underserved markets. These markets would include LGBT-owned businesses. Here’s what you can expect with a Community Advantage loan:

• Loan amounts anywhere between $50,000 and $250,000
• SBA guarantees up to 85% of the loan
• Interest rates between 7% and 10%

These loans are structured the same as term loans, meaning you’ll have a set repayment schedule with a fixed or variable interest rate. Community Advantage (CA) Lenders must make at least 60% of their loans to businesses in underserved markets. 

While these “underserved markets” are typically low-to-moderate income communities, they also include veteran-owned businesses, women-owned businesses, businesses in risky industries, and minority-owned businesses. LGBTQIA+ owned businesses will also qualify!

Unlike other SBA loans, the Community Advantage loan program is still only a pilot program. As a pilot, this means it will only operate for a limited period, until the government discontinues, extends, or makes the program permanent. As of now, the program has been extended until September 30, 2022.

Community Advantage Loan vs. Standard 7(a) loan

While Community Advantage loans fall under the SBA 7(a) umbrella, these loans have a few differences in comparison to the Standard 7(a) loan:

• Loan amounts: Community Advantage loans are capped at $250,000, while Standard 7(a) loans have a $5 million cap.
• Interest rates: Depending on the length of the terms and loan amounts, Standard 7(a) loans have interest rates ranging from Prime + 2.75% to 4.75%. Community Advantage loans have a maximum interest rate of Prime + 6%, and most rates range from 7% to 9%.
• Lender: Community Advantage loans are administered by SBA-approved CA lenders, whereas Standard 7(a) loans are typically issued by approved banks, credit unions, nonprofits, and other lenders.

Other than these nuances, Community Advantage loans are almost identical to Standard 7(a) loans. While the loan amounts are significantly lower with Community Advantage loans, their low-interest rates and extended repayment terms make them highly desirable for small business owners. This is especially true for those who struggle to qualify and obtain traditional financing, like LGBTQIA+ owned businesses.

Qualifying for an SBA Community Advantage Loan as an LGBTQIA+ owned business

As well as being an LGBTQIA+ owned business, to be eligible for a Community Advantage loan, you’ll need to meet the SBA’s general and Community Advantage-specific requirements:

SBA loan general requirements

Specific lenders may have their additional criteria, but these are the SBA’s baseline eligibility requirements:

• Your business must operate for profit
• Your business must operate in the US or its territories
• You must meet the SBA’s definition of “small business”
• You must be able to prove you have “reasonable equity” in the business, meaning you’ve invested your own time and money
• You must be able to show that you’ve exhausted other traditional financing options

Community Advantage Program-specific requirements

To help more small businesses and LGBTQIA+ owned businesses qualify, the Community Advantage Program has more lenient eligibility requirements than other SBA 7(a) loans:

• Typically, you’d need excellent credit for an SBA loan, but SBA guidelines allow CA lenders to submit applicants with credit scores as low as 140. 
• Most lenders require that you have at least 2 years in business to qualify for SBA loans. Still, businesses with much less history than that can be eligible for a Community Advantage loan—they just need to provide a reliable plan for the future.
• Normally, you’d need strong business financials to prove your ability to repay the loan. With Community Advantage loans, however, you just need a solid business plan and financial projections.

Get the Financing Your LGBTQIA+ Owned Business Needs

It’s hard to be competitive in today’s marketplace without cash. Fortunately, thanks to the SBA, other lending programs, and LGBTQIA+ business grant organizations, working capital is becoming more accessible. Even if you’re just starting your LGBTQIA+ owned business, it is possible to find a solution that works for you.

If you’re an LGBTQIA+ business owner, then a Community Advantage loan might be just what you need. Let us help. Our loan specialists can answer any questions you have about LGBTQIA+ loans. Ready to apply? Get started with an SBA 7(a) loan application or learn more about the types of SBA loans.

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