Tips for Finding and Securing a Veteran Business Loan
What is a Veteran Business Loan? Where Can I Find One and How Can I Apply?
Veteran business loans refer to any type of debt financing geared towards military veterans or their spouses (in most cases) designed to assist veteran entrepreneurs grow or start a business.
Typical examples of loans available to veterans include loans to hire new employees, open or expand a new location of an existing business, equipment loans, acquisitions loans and loans for working capital.
This veteran's business loan guide will take you through examples of loan types, typical applications and the most popular programs available to veteran business owners to help finance their company's growth.
In addition to debt financing, this guide will also address several alternate programs that offer funding for veteran entrepreneurs such as: grants, business initiatives, networking, and government contracts available to veterans.
Why Veteran Loan Programs Exist
Veteran business owners constitute approximately 7.5% of the nation's 5.4 million businesses according to the US Census bureau.
But starting a business is a difficult task, even in the best of times. As a veteran, this could be an even greater challenge as extended deployments could result in financial hardship and gaps in financial history, making it difficult to get a traditional loan for your business.
Veteran business loan assistance programs have been established in recognition of the financial and personal sacrifices made by US Military Veterans. In addition to Veteran's Administration (VA) -sponsored benefit and assistance program Also, there are many public-private programs and not-for-profit lending programs that are being offered at the state level that provide financial assistance and business consulting to veteran entrepreneurs.
Who can Get a Veteran's Business Loan?
Eligibility for a veteran's business loan is fairly straightforward - with a few exceptions. Generally speaking any veteran, active-duty military personnel or service-disabled veteran is eligible for a business loan for veterans. In addition, spouses of the above as well as widowed spouses generally will have the same eligibility for loan programs supporting military veterans. However, any veteran who has received any type of dishonorable discharge will not be considered for a VA loan or other government-sponsored loan program for military veterans.
What Types of Businesses Qualify for Veteran's Business Loan Programs?
Many loan programs for veterans require that the applicant (veteran, spouse or widowed spouse) own 51% of the business. This is a broad measure and - with some exceptions - this is the main criteria for eligibility. However, there are also some broadly-defined restrictions in the program within certain business classifications. It may seem obvious, but the business must be legal on both the Federal and State level. But this actually isn't such an easy issue. Consider the medical and recreational marijuana business. The production and sale of marijuana is now legal in some states, but it remains outlawed on a federal level and therefore would not likely be approved under the legality clause in most Veteran Business loan programs.
In addition, the business cannot involve lending capital or gambling. Business loan programs for Veterans almost unanimously prohibit using program proceeds to fund any type of lending, loaning, financing or any business that engages in any type of gambling activities.
It is notable that nonprofit businesses are also eligible for these types of loans. Many veterans have established nonprofit businesses to assist their fellow vets thanks to this program. Your loan arrangement will likely require that you have established the appropriate tax/corporate structure for a nonprofit organization under the IRS Code. Be sure to check with your tax advisor about the requirements prior to applying for a loan to improve your chances of success and to streamline the application process.
What to Expect and How to Increase Your Chances of Success
Now that we have covered the eligibility and definition part of business financing for veterans (the "what" and "who" part), let's focus on sources of funding and setting expectations.
Keep in mind, while there are many places offering assistance to veterans, do not expect this to be easy, and expect to encounter a few rejections along the way. This is a difficult process and it may take weeks or even a few months. The more you know and the better prepared you are, generally speaking, the better your chances will be to get the financing you need and in a shorter period of time.
Preparation is key to being successful at borrowing and getting a timely decision. As mentioned above in the nonprofit example, it is wise to have your not-for-profit status established, and all of your financial and corporate paperwork in order and up-to-date prior to applying for a loan.
Knowing what type of loan to apply for is also important. These days, most lenders are highly specialized and there are an overwhelming number of programs tailored for special needs and objectives based on the stage a business is in, what the loan is for or the amount you need. Let's also take a few moments now to look at loans, grants and business assistance programs, each very valuable in their own right.
Best Places to Find Business Loans for Veterans
StreetShares is a veteran-owned finance company.
The company operates an auction platform that matches business owners seeking funding with investors. This is connected with their factoring or invoice financing offering and has no caps or limits on lending amounts.
In addition, they offer a term loan facility as well as their Patriot Line of Credit. Both the Term Loan and Line of Credit programs have a cap of $100,000 and 3-year (36 month) repayment horizons.
This is a company known for its passion and empathy for the military community. Their website offers a wealth of information and they also provide live assistance with applications and submission.
Small Business Administration - (SBA)
The SBA offers several loan-guarantee programs in addition to a wealth of resources for veterans looking to establish or grow a business.
Just a reminder, the SBA is not a direct lender. They guarantee repayment of a portion of your loan, but the loan itself is granted through a bank or other financial institution. There are two main types of SBA loans for veterans, and we've explained each below.
Military Economic Injury Loans
The Military Reservist Economic Injury Disaster Loan (MREIDL) provides funds to help an eligible small business meet its ordinary and necessary operating expenses that it could have met, but is unable to, because an essential employee was called-up to active duty in his or her role as a military reservist. If you own a business that has experienced financial distress as a result of your active duty service, the Military Reservist Economic Injury Disaster Loan (MREIDL) program offers low (4%) interest loans that may be able to assist in recovering from economic loss.
The loan is available to veterans within one year of being released from active duty and allows for terms up to 30 years. However, keep in mind that the program requires collateral for loans over $50,000.
Again, this veteran business loan is designed for a very specific and select category of military personnel.
In addition to the above criteria, the SBA is required by law to determine that the business would be incapable of recovery without government intervention.
SBA Express and Community Advantage Loans
The Small Business Administration 7(a) program offers attractive loans for veterans with good credit. The first is the Express Loan program, which provides basic 7(a) loans up to $350,000 with a repayment period of up to seven years.
This program is also available with expedited review from the SBA (a decision response may be given in 36 hours or less). Veteran business owners who apply through the Express Loan program also benefit from the SBA Veterans Advantage, meaning all upfront fees are reduced to zero if the loan application is approved. For these loans, as mentioned above, the lending institution will require the borrower to have good-to-exceptional credit.
Another type of 7(a) loan type that is excellent for veteran business owners is the Community Advantage Loan ("CA" loan). CA Loans are offered to businesses in markets not well-served by major or national banks, including businesses that qualify for the SBA Veterans Advantage.
CA Loans are offered up to $250,000 with terms up to 10 to 25 years, and borrowers have access to management and technical assistance. Borrowers must show their creditworthiness and viability of their business idea to qualify. Qualifying is not limited by a business's revenue or amount of collateral available.
Accion is affiliated with Syracuse University's Institute for Veteran and Military Families. According to their website, their mission is to provide financial literacy and high-quality, affordable financial services.
Accion is a powerful resource for veterans with startups or new businesses. They offer what is considered a microfinance stage loan program - basically that's a tailored financing and educational resource for a veteran that's starting their own business.
Accion is a nonprofit organization that offers loans for underserved businesses, and the organization is committed to helping veterans qualify for funding if they are not currently eligible by offering workshops and resources.
Startups can borrow up to $10,000 with interest rates starting at 11%. The application takes 15 minutes to complete, and you will hear from Accion within two business days. To qualify, you need a credit score of 575 and must demonstrate that your business has the cash flow to make repayments. Your business cannot be over 30 days late on any bills (certain exceptions are made for emergency situations). For businesses that are less than six months old, the business must be located at home or in an incubator. Other requirements may apply.
Hivers & Strivers
Hivers and Strivers is an Angel Investment Group focusing on early stage investments to support start-up companies founded and run by graduates of the U.S. Military Academies.
Because of the unique leadership skills taught at the Nation's top military academies, the investment group's program is open exclusively to Academy alumni.
Grants and Other Business Financing Resources for Veterans
In addition to loans, there are many sources of business grants available to veteran entrepreneurs as well. However, it should be noted that grants (money given to a business owner that does not need to be repaid) are quite rare and often have very stringent requirements.
The United States Government's BusinessUSA website is a good place to start to look for federal and state financing programs for your small business, especially if you are a veteran.
Like the SBA, BusinessUSA does not offer loans or grants directly; it shows all government financing options for which you may be eligible. To see your financing options, you'll need to fill out a questionnaire that asks about your business's location, planned use of the funds, special group status (e.g., veterans, women, minorities, etc.) and industry of your business.
After filling in the questionnaire, you'll see a list of all state and federal programs you may qualify for, preferred private lenders in your state, SBA microlenders and SBA offices in your state. You can also access BusinessUSA through the Department of Veteran Affairs Veteran Entrepreneur Portal.
VetFran Business Grant Fund
VetFran was created by the International Franchise Association.
VetFran helps veterans and their spouses become involved in franchising opportunities all around the country, with more than 650 different franchise brand possibilities.
You can apply at the VetFran website, and you will be contacted and interviewed to determine whether franchising might be a good fit for you. If so, you will be advised about which kinds of franchising opportunities are available, to see if any of them interest you.
Discounts, mentoring, training, and other resources are provided to veterans who fit the franchising profile.
UPS Franchise Discount
While this program is not technically a grant, this initiative gives veterans looking to join the UPS franchise a $10,000 discount off the franchise fee, and 50-75% off the initial application fee.
The UPS Store ranks consistently among the top participants of the Veterans Transition Franchise Initiative program and has a large number of its locations run by veteran entrepreneurs.
Little Caesars Veterans Program
Again, this program is not technically considered a grant. The restaurant franchise Little Caesars offers a set of discounts to honorably discharged veterans, including a $5,000 franchise fee discount, the same amount off the first equipment order, and other marketing and supply services that total up to $30,000. If you're trying to start a franchise business, these costs are a huge burden.
Service-disabled veterans qualify for even more from Little Caesars, including a full waiver of the full $20,000 franchise fee and $30,000 worth of other benefits.