The Definitive Guide to Veterans’ Business Loans
December 2, 2021 | Last Updated on: July 26, 2022
December 2, 2021 | Last Updated on: July 26, 2022
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.
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).
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.
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.
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.
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.
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:
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.
There are a variety of small business loans that are designed to meet the unique needs of veteran small business owners.
In addition to loans, there are several small business grant opportunities available to veteran small business owners.
There are several ways that veteran small business owners can enhance their chances of qualifying for SBA loans and veteran small business grants.
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.
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.
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.