The Definitive Guide to Veterans’ Business Loans

There may not be any single group in the United States better equipped to succeed in business than military veterans. To succeed in business requires discipline, focus, planning the ability to overcome adversity – all qualities that are inherent in veterans. But getting small business loans has its challenges even for this hardworking group, so we have put this guide together for veterans to obtain the funding they need.

Perhaps that’s why 9.1% of all small businesses in the United States are owned by a veteran, and that number continues to grow. These veteran-owned businesses produce approximately $1 trillion in annual revenue. But whether these businesses are new firms that have been established by veterans or are existing businesses that have been purchased by former military members, they are just as likely to need funding at some point as any other business.

Recent history has seen programs such as the Small Business Administration (SBA) Veterans Advantage and Patriot Express Loan programs discontinued. So, can veterans still get small business loans? If so, how hard is the process to do so? Fortunately, there are still many financing options available to veteran business owners, such as veteran affairs business loans.

How much can you get from a VA business loan? What credit score is needed for a VA business loan? And is it easy to get a VA business loan? These and other pertinent questions will be answered below.

How Can I Get a Small Business Loan as a Veteran?

A business must have majority ownership (at least 51%) by an owner who meets one of the criteria below in order to qualify for a business loan from the Veterans Administration (VA).

• Active-duty military service members who are currently participating in the Transition Assistance Program;
• Service-disabled veterans or honorably discharged veterans;
• Reservists and active National Guard members;
• Spouses of a veteran, active-duty service member, reservist, or National Guard member;
• Widowed spouses of service members who died in service or from a service-related disability.

In addition, VA business loan requirements include meeting typical business loan qualifications, such as credit score, revenue, and length of time the business has been in operation.

Business Loan Options for Veterans

Veteran business loans are commonly referred to as VA loans. Veterans and their spouses can apply for VA loans through the SBA and commercial lenders. The SBA offers several financing programs for veterans for active service members. These include:

SBA Express Loan Program. This program offers veterans the chance to borrow up to $500,000. The upfront guarantee fees, which are normally two to three percent of the loan, are waived. These loans can be approved within 36 hours as opposed to the weeks or months it takes to get approval for other SBA loans. On the downside, interest rates for SBA Express loans are slightly higher than those of SBA 7(a) loans.

SBA Veterans Advantage 7(a) Loan. The SBA 7(a) loan is the SBA’s most popular small business loan among all small business owners. But veterans can get a preferential version of the 7(a) program through the SBA’s Veterans Advantage program, veterans and active servicemen can obtain loans up to $350,000. In addition, the Veterans Advantage program can offer substantial fee reductions on SBA loans such as SBA (7a) and Express Loans. For instance, the guarantee fee is waived for any loan of $125,000 or less and is reduced by 50% for any loan greater than $125,000.

Underwriting, however, can be strict for these loans. A minimum credit score of 650, strong revenue, and at least two years in business will likely be necessary to be approved for an SBA 7(a) loan.

Military Reservist Economic Injury Disaster Loan Program (MREIDL). While other veteran loan programs are designed for expanding or starting a business, this program helps cover regular business operating costs. Should an essential employee who is a military reservist gets called to active duty, the MREIDL can provide up to $2 million to help cover any costs generated by the essential employee’s absence.

SBA 8(a) Service-Disabled Veteran-Owned Small Business Concerns Program. This business development program is designed to help veteran business owners who were hurt in the line of duty secure government contracts. The SBA’s stated goal is to annually award at least three percent of all federal contracting funds to service-disabled veteran-owned small businesses. The SBA 8(a) program provides a certification that can help small businesses gain an advantage over their competition within their industry for government contracts. It also helps walk small businesses through the government bidding process.

Veterans Business Fund. (VBF). The VBF is a 501(c)(3) nonprofit that can help broker small business loans for veterans who want to expand their business or purchase a franchise. Veteran small business owners who want to apply for a loan must bring 50% of the equity capital required and an outside lender to the VBF. The VBF will approve only applications from veterans who have been unsuccessful in acquiring financing from a bank because of insufficient equity.

Terms of a VBF loan are extremely favorable to small business owners who qualify. The loans are non-interest-bearing to the extent that the law allows. Repayment schedules are five years or longer.

StreetShares. This veteran-owned financial technology company offers an online lending program that isn’t designed specifically for veterans. But it provides three types of loans designed for vets: term loans up to $250,000; lines of credit up to $250,000; and contract financing.

Startup Business Loans for Veterans

Requirements for SBA business loans – for veterans and otherwise – tend to be strict. These requirements include the need for businesses to prove a track record of success over time with strong cash flow.

As a result, veteran startup business loans are often acquired through online lenders, just like many startup loans for non-veteran businesses. Online lenders tend to be more flexible with their requirements, but also charge higher interest rates.

Despite the higher interest rates, online lenders are also a good resource for those seeking veteran business loans with bad credit. Personal loans from online lenders – rather than loans specifically for a business – can be a good source of funding for both veteran owners of startup businesses and veteran business owners with bad credit.

VA Business Loans for Franchises

The first step for veterans who are interested in financing a franchise of an established business should be to see if the franchisor itself can help. Almost 400 franchise brands are members of the Veterans Franchise Transition Initiative (VetFran) of the International Franchise Association.

Since 2002, more than 1,700 veterans have taken advantage of the program to become franchise owners. The IFA member franchisors offer incentives, discounts, and other creative financing options to veterans who’ve been honorably discharged and are interested in opening franchises. Suppliers who belong to the IFA’s Supplier Forum also offer veterans assistance by waiving or reducing fees for their products and services.

Benefits of a Veteran Small Business Loan

A veteran small business loan can help a business expand its operation, while at the same time not having to interrupt its normal cash flow. Examples of how veteran business owners can use their small business loans are:

• Expanding office space or adding locations. A growing business may need more space, be it in the same place or a different spot, to increase its revenue.
• Buying inventory. A veteran small business loan can allow a veteran business owner to stockpile more inventory at a reduced rate, which can lead to a stronger revenue stream.
• New employees. Small business loans can give business owners the financial flexibility to hire and train new employees. These employees can give business owners room to focus on the long-term growth of the business and staff new locations as the business expands.
• Equipment purchases. Whether a business needs to buy or lease new equipment, or simply replace existing equipment that has seen better days, a veteran small business loan can provide the funds to do so.
• Marketing and Advertising. A campaign to create public awareness of a small business is a short-term expense that can yield long-term benefits. A small business can minimize the financial impact of such an initiative.

From startup costs to inventory, payroll, marketing, equipment, and expansion, small business owners may occasionally need funding from outside sources. A veteran business loan can help veteran business owners meet these challenges without interrupting cash flow.

Types of Small Business Loans

There are a variety of small business loans that are designed to meet the unique needs of veteran small business owners.

• Short-term business loans. This type of loan is a good fit for many veteran-owned businesses. Short-term business loans are a good choice to meet current financing needs, like purchasing additional inventory, filling gaps in cash flow, capitalizing on new opportunities to grow a business, and meeting unexpected needs for additional funding. A short-term business loan can cover these extra costs while maintaining the normal cash flow of a small business.
• Business line of credit. A business line of credit establishes a maximum amount that a financial institution will allow a business to borrow. Businesses can tap into the line of credit whenever it feels necessary and withdraw any amount as long as it doesn’t exceed the maximum agreed-upon amount. The business owner will only be charged interest on the amount that is borrowed, not the total line of credit amount. 
• Revolving line of credit. With a revolving line of credit, small businesses can access working capital in the increments they may need at a given moment up to a pre-approved limit. This flexibility can allow a small business to swiftly capitalize on opportunities that may quickly arise. A revolving line of credit can also help ensure that small businesses continue to run smoothly through down business cycles and cash flow issues.
• Working Capital Loan. This type of loan is another option for working through cash flow issues. Unlike the revolving line of credit, however, it provides a fixed amount of money in a single payment.
• Microloans. The SBA microloan program was created to help all small businesses and non-profit organizations, but veteran small business owners can benefit. Microloans are loans of small amounts of money that are typically offered to those small businesses with lower credit scores, subpar credit, or without the collateral typically required for a larger traditional loan. These relaxed requirements make microloans potentially a good choice for a veteran business startup loan. The average amount of a microloan is approximately $13,000. The maximum microloan amount is $50,000.

Veteran Small Business Grants

In addition to loans, there are several small business grant opportunities available to veteran small business owners.

• Grants.gov. Numerous federal government opportunities are listed on this site, which is the official site for searching for government grants. 

• The StreetShares Foundation. This organization was founded by a group of military entrepreneurs to support the military entrepreneurial community. The foundation’s grant program (hyperlink) is a big part of its mission, as it awards up to $15,000 for veteran entrepreneurs.
• Hivers and Strivers. This angel investment group provides startup funding to companies founded by graduates of U.S. Military Academies. Hivers and Strivers typically invest between $250,000 and $1 million in a single round of funding. To apply, visit hiversandstrivers.com and complete an online application.
• Venture Capital for Veterans. This is another angel investment group that provides investments ranging from $200,000 to $500,000 in businesses owned by veterans. To apply, visit v1776c.com.
• Service-Disabled Veteran-Owned Small Business Program. In addition to disabled veteran business loans, this grant program provides another financing option for veterans who have a service-connected disability. The federal government annually plans to set aside three percent of its contracting budget for service-disabled veteran-owned small businesses. To qualify, a business must have at least 51% owned and controlled by one or more service-disabled veterans. In addition, the business must have at least one service-disabled veteran manage the day-to-day operations of the business and make long-term decisions for the firm. The businesses must also meet the SBA’s definition of a small business.
• Warrior Rising Small Business Grants. Warrior Rising (hyperlink) is a nonprofit organization that supports veterans who want to start a small business through grants to cover startup business costs. Warrior Rising also offers mentorship, workshops, and other business training for veteran entrepreneurs.

Tips to Qualify for Veteran Small Business Loans

There are several ways that veteran small business owners can enhance their chances of qualifying for SBA loans and veteran small business grants.

• Improved personal credit score. Credit scores range from 300 to 850. A score of at least 600 will improve any business owner’s likelihood of qualifying for a loan. Paying bills and other debt obligations consistently on time makes a small business owner more attractive to all types of lenders. It can also positively affect the interest rate attached to the repayment of the loan.
• Understand the minimum qualifications of the lender. Some lenders are more strict or flexible than others. The SBA, for instance, has more stringent standards. Since it only offers financing to small businesses, it has size standards. SBA loans also require strong personal credit, revenue, and an excellent history of repaying government loans. Meeting these standards can result in more favorable interest rates for the small business seeking funds.

On the other hand, online lenders tend to take a more casual approach toward qualifying small businesses for financing while still maintaining some standards for small business owners. But they typically are more lenient with poor credit scores, cash flow, and bankruptcies.

• Preparation of financial and legal statements. Certain legal and financial documents are normally required by traditional lenders during the application process. These documents can include items such as tax returns, bank statements, balance sheet and income statements, commercial and business licenses, financial projections, and articles of incorporation.

Veteran small business owners who are in a hurry to acquire funds may want to consider online lenders, due mainly to the fact that the online application process tends to be more streamlined due to fewer documents being required.

• Strong Business Plan. Most lenders will want to see a business plan before making a decision on whether or not to provide financing to a small business. This is because a business plan can help them better assess the risks involved in a small business. A strong business plan will include financial projections that indicate that a small business will be able to afford both its normal expenses and loan repayments. It will also include items such as a description of the business and a SWOT analysis. 
• Potential Collateral. Collateral is an asset that a lender can take ownership of, such as equipment, real estate, or inventory, should a small business be unable to make its loan repayments. Since some lenders and certain loans will require small businesses to include collateral in a loan agreement, being able to identify collateral upfront can enhance a veteran business owner’s likelihood of being approved for a loan. The number of lending options a small business must choose from will likely be increased according to the more collateral it can offer.

In the case of SBA loans, both collateral and a personal guarantee from a small business are required. The guarantee is an agreement to accept responsibility for any debt. On the other hand, online lenders typically just require a guarantee.