Business loans for veterans

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on April 19, 2024. Next review due October 1, 2025.

    Raising funds to start or grow a small business is never easy for entrepreneurs, but US veterans may encounter extra difficulties due to gaps in their credit history from their time in service. Fortunately, there are loans and funding programs for veterans that are specifically designed to overcome these problems. Read on to learn more about business loans for veterans and how they can support you in your new career.

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      What business loans are available for veterans?

      Although the US Department of Veterans Affairs doesn’t offer business loans to veterans there are plenty of other lenders that do and they include banks, credit unions, nonprofits, online lenders and the US Small Business Administration (SBA). Some of these providers have special terms, concessions and deals for veterans that may make it either easier or cheaper to get a business loan. Let’s take a closer look at what’s on offer:

      SBA loans for veterans

      SBA loans come in many varieties, but for veterans, regular SBA 7a loans, SBA express loans and SBA microloans may be the best fit. 

      SBA 7a loans

      SBA 7a business loans are backed by the US Government up to 85% of loan value and can provide up to $5million to qualifying borrowers with repayment terms as long as 25 years. Government backing reduces risk for the banks, credit unions and online lenders who offer these loans, although veterans will still face the same terms and conditions as other borrowers. SBA 7a loans carry no special deals or concessions for ex-military.

      SBA 7a loans usually come with much lower interest rates and fees than other commercial lending, but meeting their strict rules of eligibility can be tough. As well as an approval process that can take several months, organizations will typically need to have been in business for at least four years and have annual revenues over $180,000. Your personal credit score must be at least 680.

      SBA express loan

      SBA express loans are a faster alternative to the standard 7a loan program. Offered by the same pool of lenders, express loans can give veterans up to $500,000 to support their business and you will usually get a ‘yes/no’ indication within 36 hours of making your application. Note that SBA express loans are only 50% backed by the US Government, so lenders carry more risk. This means interest rates and fees are higher with express loans than their 7a counterparts.   

      The SBA express loan program comes with a special discount for veterans. Currently, most borrowers have to pay an upfront ‘guarantee fee’ of 3% for SBA Express loans over $150,000. However, under the SBA Veterans Advantage program, this fee has been reduced from 3% to 0% for qualifying veterans in an effort to assist veteran-owned businesses.

      SBA microloans 

      Nonprofit and community-based lenders can provide SBA Microloans for borrowers that may struggle to secure standard business financing. Available up to $50,000, these loans can be ideal for veterans who are seeking a smaller sum to start or grow their business. SBA microloans also come with more relaxed qualifying rules and can usually be secured with FICO scores as low as 500, or even with no credit score at all. However, veterans should be aware that these types of loan often require collateral to secure the debt or a personal guarantee that makes you personally responsible for the loan, not your business. 

      MREIDL program

      Although The Military Reservist Economic Injury Disaster Loan (MREIDL) program does not provide cash to veterans seeking funding for their business, it can help small businesses to keep going if an essential employee is called to active duty. Overseen by the SBA, the MREIDL program can provide working capital of up to $2million to cover “ordinary and necessary operating expenses” to qualifying businesses during the period that the essential employee is absent. The interest rate is capped at 4% and terms of up to 30 years are available. Note that collateral is required for all MREIDLs over $50,000.

      Is my business eligible for an SBA VA loan?

      To qualify for an SBA VA loan, businesses must be at least 51% owned and controlled by an individual in one or more of these groups:

      • Veterans (other than those dishonorably discharged)
      • Service-disabled veterans
      • Active-duty military service members participating in the Military Transition Assistance Program (TAP)
      • Reservists and National Guard members
      • Current spouse of any veteran, active-duty service member or any reservist or National Guard member, or a widowed spouse of a service member who died while in service or of a service-connected disability

      Additionally, your business must be for-profit, have fewer than 500 employees and annual sales of less than $7,500,000.

      Non-SBA business loans for veterans

      The SBA are not the only funding game in town for veterans. Banks, credit unions and online lenders also offer a wide choice of business support for veteran-owned organizations. How do these lenders compare?

      • Banks: Business loans from national, regional or local banks often come with low interest rates and fees, but borrowers will usually be faced with strict qualifying rules. Getting an approval may be tough for many veterans, especially if their credit history is spotty. Some banks may provide special discounts or terms for veterans, but it could take time and much persistence to find them.
      • Credit Unions: Loans from credit unions are also competitively priced and some special deals for veterans may be on offer. However, you will typically need to be an established business with good credit and a strong financial history to get an approval. 
      • Online lenders: Young businesses and veterans with weaker credit may do better with online lenders who tend to have more relaxed rules of qualification. These fintechs and marketplaces will usually give you a ‘yes/no’ much faster than traditional lenders, sometimes in minutes, although borrowers should expect to pay higher interest rates and fees. Online lenders typically offer all the standard loan types as well as a specialist business loans, such as equipment financing or invoice financing. Some discounts and deals for veterans may also be available.

      What are non-SBA loans for veterans?

      Non-SBA loans for veterans can come as term loans, revolving lines of credit, cash advances, business credit cards, and invoice financing as well as loans for specific purposes such as buying equipment or machinery. Borrow from a few thousand dollars to over a $1million.

      • Business term loan: Commonly used for one-off investments where you know exactly how much cash you need. Commercial real estate purchases, plant and equipment investment, and debt repayment and restructuring activities work well with this kind of loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Collateral may be required.
      • Business line of credit: This is a business loan that functions like a high-value credit card but comes with lower interest rates and fees. Organizations can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. Interest rates are usually fixed, and businesses may repay on a set or flexible schedule. Collateral may be required.
      • Invoice financing: Also known as account receivables financing, this type of loan allows you to borrow against the value of your unpaid invoices. The lender will usually provide up to 95% of the invoice value within a few days or even hours of the bill being raised. Your invoices act as collateral, no added security is required.
      • Merchant cash advance: Available for businesses that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.
      • Revenue-based financing: Functions like a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), businesses may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales. This type of loan can usually be secured quickly as qualification rules are less intensive and credit scores are not so critical.
      • Equipment financing: Equipment loans use the assets you’re financing as security, similar to a car loan or a residential mortgage. You use the equipment as you pay for it and the lender maintains a lien on the title to the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.

      Alternative funding for VA businesses

      Veterans that do not qualify for regular business loans don’t have to abandon their big ideas. There are other ways to secure the funds you need:

      External investors

      If you’re seeking outside investment, there are networks of venture capitalists and angel investors readily available online. Some, such as Hivers and Strivers, are solely focused on supporting veteran-owned businesses. 

      Bringing in external investment can give you the cash you need, and it may also deliver a unique and extra set of skills and contacts that can help your organization grow even faster. However, be aware that investors will usually want a piece of the action in exchange for their money. This will mean you giving up a share of your ownership and may loosen your overall control of the business. Some investors may also want higher dividends or royalty payments as well as their share of equity. Also note that venture capitalists and angel investors can be very picky about the businesses they choose to back. You could spend many months pursuing one lead after another before you find the right match. 

      Veteran Grants

      Business grants are another option for veteran business owners. Unlike business loans, the major advantage of this type of funding is that you don’t need to repay the money. However, the downside is that can be very tough to secure a grant. They are often restricted to specific locations, industries or causes, making it difficult to qualify.

      Veteran-specific grants:

      Crowdfunding

      Available via various online platforms, crowdfunding can bring in large sums if your presentation hits the right spot. Although you will need to be creative to raise big money in small donations from hundreds or even thousands of donors, you do not need to repay the cash if you spend it where you said you would. An eye-catching idea and a powerful pitch is essential to succeed with this funding option.

      What can a VA small business loan be used for?

      VA small business loans can be used for almost any legitimate business purpose:

      • Start a new business
      • Expand or acquire an existing business
      • Capital expenditures, including buying or rehabbing real commercial estate
      • Product research and development
      • Equipment and vehicle purchases
      • Marketing activities
      • Pay off more expensive business debt
      • Cover working capital shortages – pay bills and wages, buy inventory and more

      How to apply for a VA business loan

      You can improve your chances of getting approved for a VA business loan by preparing in advance. Key tasks to take care of include:

      • Identify your need for the loan. Why do you need the money? You must present a strong case for funding to secure a VA business loan and your financial records must support this need, indicating how the loan will deliver your plan – and critically, how you will pay the loan back. 
      • Check your personal and business credit scores. It is common for mistakes to occur on credit reports and incorrect information could have an adverse impact on your loan application. Note that business credit scores are usually graded from 1 to 100 and are different than personal FICO scores. A good business credit score is 80+ and a good FICO score is 680+. Additionally, not all organizations will have a business credit score, in which case, the lender will scrutinize your personal credit report. Ensure it is correct. If there are errors, get them fixed before applying for your loan – and be aware that fixing a credit score can take time and there are no ‘fast credit repairs’ despite the many promises from online ‘credit doctors’ who say they can perform miracles for your score.
      • Get your paperwork in order. Lenders will need to see bank statements (at least 18 months), balance sheet, profit and loss statements, cashflow projections, list of debts, list of assets, customer database, documents that reveal the structure of your business (corporation, LLC, etc.), certificates of good standing, tax returns and more. 
      • Collateral. Lenders like to know they can get their money back if things go wrong. Usually this means you must provide security for the loan – collateral – often in the form of real estate or some other hard asset that the lender can sell to recover their funds if the worst should happen. If you don’t have sufficient collateral yourself, you could ask a cosigner who has real estate or other assets to join the deal. Most lenders will want collateral to the full value of the loan and will usually consider provided assets at less than general market rates – known as the ‘distress value’ – as they may need to sell the assets quickly to recover their funds.
      • Build a good business plan and pitch. This goes back to your need for the loan. Depending on how much you are asking for, lenders will expect a detailed and insightful business plan that explains why you need the funds and what they will do for your business once you have them. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them. If you cannot produce a business plan yourself, it may be worth paying an external service to do this for you.

      Get started with Swoop

      No matter if you’re a veteran seeking your first business loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for your VA loan. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality VA business loans from a choice of lenders. Give your organization the financial boost it deserves. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

      To read our editorial policy, please click here.

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