10 Tips to Applying for Small Business Loans for Veterans
If you or your spouse served in the military and are thinking of starting a small business, you aren’t alone. More and more, today’s veterans are choosing small business ownership as a viable career path.
Veterans possess the dedication, drive, and self-discipline needed to compete in today’s competitive business market. If the thought of financing your new business makes you nervous, you should know there are federal programs in place to help you reach your goal.
It’s important to consider all your options. Choosing a business loan depends on numerous factors, including your credit score, business history, revenue, and your financial health.
Before applying for a business loan, you want to be prepared. Here are 10 tips you should know about applying for business loans for veterans.
1. Understanding the SBA
Before you apply for an SBA loan as a veteran, you should understand what the Small Business Administration (SBA) does and how it benefits small businesses. The SBA is a government program that helps small businesses.
It serves as an advocate for small businesses and helps provide business funding. Getting a business loan isn’t easy, and it can be tough for military veterans as well.
Some veterans may have gaps in their credit histories due to deployments. They may not have the records that credit unions typically ask for.
This is where the SBA can help veterans. The SBA works with lenders to help veterans get the funding they need. With a VA SBA-backed loans, veterans can enjoy a loan with low-interest rates and flexible terms.
Understanding the application process will put you on a better path for securing the funding you need for your small business.
2. Knowing Who Is Eligible
If you plan to apply for a VA loan, you should understand who can receive these loans. Eligible individuals include:
- Active military personnel
- Service-disabled veterans
- Current military spouse or widow
Veterans who receive a dishonorable discharge aren’t eligible for VA loan programs. Active-duty personnel who are within 12 months of separation or retirees within 24 months of retirement may qualify for an SBA Express Loan.
National Guard members and reservists may qualify as well. Eligible businesses must be at least 51% veteran-owned. Most businesses, with the exception of pyramid schemes, gambling, or money lending businesses, fit the requirements.
3. Getting Verified as a Veteran Owned Business
There are a variety of public and private resources available for veteran small business owners. Most of these programs require you to be a verified veteran-owned business.
The VA has changed the verifying process based on feedback from the vet-owned business community. There’s now a pre-qualification process to help speed up the process.
It involves assigning a single point of contact for each application. This lessens the red tape and improves the customer service aspect of the application process.
4. Get Your Financial Ducks in a Row
Life is unpredictable, and sometimes it affects your personal finances. This can impact your business as well.
If you carry too much debt or are behind on your payments, obtaining a business loan can be challenging. The Service Members Civil Relief Act (SCRA) helps some veterans receive an interest rate deduction on debts acquired prior to military service.
Qualifying veterans could see a lower interest rate on mortgage payments, car notes, and credit card debt. Lower monthly bills make it easier to pay your bills on time and reestablish a favorable payment history.
In addition, you should try to organize your financial and business documents. Make sure your bank statements, credit card statements, rental contracts, and business licenses are accessible and updated.
If you use an online lender, they will want to access your documentation electronically.
5. Be Familiar with SBA Loan Options
If you receive an SBA-backed loan, the SBA doesn’t lend the money for your business. Instead, you borrow from a bank, credit union, or another financial institution that offers SBA-backed business loans.
To receive an SBA-backed loan, you’ll need decent credit and finances. SBA loans are reserved for businesses that have exhausted other loan opportunities.
You must show that you’ve applied elsewhere in order to qualify for an SBA loan.
SBA.gov provides information and training programs for veterans. You can learn about the basics of entrepreneurship and business financing. You can also receive tips for writing a solid business plan.
The SBA Veteran’s Advantage program is available for businesses that are 51% owned by an active duty service member, veteran, or other qualified persons.
6. Know Your Credit Score
It’s important to take a realistic look at your credit history and know your credit score. This will help you determine the kind of financing you can get and the terms you can expect.
Having poor credit makes things harder and the costs of borrowing money more expensive. Understanding your credit score will help you know where to look for a loan and know what lenders to avoid.
The better your credit score, the more options you have for financing. Knowing your credit score can help you set a benchmark for developing a plan to improve your score, whatever it may be.
Making the payments on time on your business loan will help you begin improving your credit score right away.
7. Know How Lenders Measure Risk
Lenders will look at a variety of things to gauge the level of risk involved in lending you money. These include your credit score, payment history, and more.
A sketchy payment history or record of loan default will increase the cost of financing for you. They will look at your cash flow and operating history as well.
You should think about whether you have the collateral you need to secure a business loan or if you need an unsecured loan. If you don’t need the loan right away, take some time to shore up weak areas that mark you as a high risk for lenders.
8. Be Clear About What You Want
You want to provide a clear picture to lenders about how much money you want to borrow and what you need the money for. You want to have an idea of the return borrowing this money will provide for your business.
Having specific financial guidelines in mind helps prevent you from taking on too much debt. Having a focus for how you plan to spend the money and the result you hope to achieve will keep you focused on the goal at hand.
It’s easy to get caught up in thinking too big, and this leads to borrowing too much at one time. If you need funds to carry you through a time of crisis or cash flow issue, think about how you can avoid this from happening in the future.
When you receive your funding, be strategic in spending it according to plan.
9. Have a Strong Business Plan
Lenders have an interest in more than your business background. They want to know about you. Your personal credit matters as much, if not more, than your business credit score.
It’s important to tie your personal story to your business plan. Think about how your military experience, skills, and contacts will benefit your business.
Choose a business field you understand and are comfortable with. Do your research and have a clear plan of what you want to do and how much money you need to do it.
10. Utilize Vet-Focused Resources and Programs
There are a variety of public and private resources available for veterans hoping to become business owners. The SBA Patriot Express Program works with veterans to find affordable business loans.
Other programs offer business classes, business plan preparation, or help applying for government contracts. There are programs that help service-disabled veterans reach their dreams of entrepreneurship as well.
Many veterans would love to start or expand a business, but they aren’t sure where to begin. Researching the many veteran-focused resources and programs out there is a great place to start.
Business Loans for Veterans
As a veteran, your military service provided you with the skills to become a successful business owner. Leadership, discipline, and a strong work ethic are critical skills for successful entrepreneurs.
SBA-backed loans help many veterans start or expand a small business. Take the time to do your research and develop a solid business plan.
Be sure to check out the many available resources designed to help veterans become successful business owners.
There are a variety of business loans for veterans. Whether you hope to start a business, expand your business, buy property or equipment, or need money for expenses, an SBA loan may be right for you.
If you are thinking of applying for a business loan, we’d love to assist you. Contact us today.