What Types of Small Business Loans Exist for Veterans?

Posted at April 1, 2020 » By : » Categories : Business Funding,SBA Loans »
types of small business loans

As a veteran, your years in military service provided you with valuable skills that translate to the business world. Making good decisions, taking smart risks, and being self-disciplined are all skills of a successful entrepreneur. Many veterans choose to embark on a new career as a small business owner. But starting a business requires money.

If you’re a hopeful entrepreneur, there’s good news. There are a variety of programs in place to help you accomplish your goal of owning your own business.

You can take advantage of favorable loan options designed with you in mind. Let’s take a look at some types of small business loans available for veterans like you.

The SBA

Before embarking on a loan, it’s important to know about The Small Business Administration (SBA) and how it benefits small businesses. The (SBA) is a government body that helps small businesses.

The SBA serves as an advocate for small businesses and provides education, training, and financing. It helps assist with essential financing to get small businesses up and running.

The SBA and Veterans

Getting most types of small business loans isn’t easy, and it can be especially hard for veterans. Traditional lenders require paperwork documenting a strong financial history.

Some veterans may have gaps in their credit history. They may not have the records they need to prove creditworthiness.

This can make getting a loan harder. That’s where the SBA can help.

SBA loans require typical documentation like credit scores and income verification. But the SBA works with veterans to help them get the funding they need.

Borrowers benefit from VA SBA benefits, including lower interest rates and more flexible terms.

When the SBA backs your loan, lenders take note and are more willing to approve a loan to a qualified borrower.

Your Idea

If you have an idea for a business, that’s where you start. Choose a field you have some knowledge and comfort with. In today’s crowded market, how you sell your idea matters.

Make sure you have a solid idea and a plan for your business moving forward. Even if you’re starting small, you can always expand once the business begins to take shape.

Half the battle of starting a business is having the courage to try and the knowledge of how to get funding. The federal government provides numerous opportunities for veteran business entrepreneurs.

So, whether your idea is big or small, there are resources available.

Types of Loans for Veterans

The SBA has multiple program options for veterans and service members. There are also loans available for disabled veterans who were injured in the line of duty.

SBA loans aren’t easy to obtain. But understanding your options and what to expect during the application process puts you on a better path to receiving the loan you desire.

The Veterans Advantage Loan Program

The SBA Veteran’s Advantage program offers veterans loans up to $ 350,000. This is open to eligible servicemen as well. This program offers substantial fee reduction for eligible veterans on SBA loans, such as the SBA (7) and Express Loans.

To qualify, veterans must own 51% of the business. Qualified veterans include:

  • Veterans with an honorable discharge
  • Active-duty service member eligible for the Transition Assistance Program (TAP)
  • Service-disabled veterans
  • Active Reservist or National Guard member
  • Spouse of a veteran, active duty member, National Guard member, or reservist
  • Widowed spouses of service members who die in service or due to a service-related disability

VA Loan Requirements

Veterans and active service members applying the Veterans Loan Advantage must meet the same requirements for SBA 7(a) loans. In most cases, a credit score of 680 is required in addition to personal collateral.

The business can’t be delinquent on any government debts and cannot have bankruptcies or foreclosures on its credit report. Borrowers should be in business for two or more years.

Startups with solid industry experience and a strong business plan may be eligible.

Military Reservist Economic Injury Disaster Loan

Unlike other SBA loan programs, the Military Reservist Economic Injury Disaster Loan (MREIDL) provides loans from the agency itself. With MREIDL, the SBA offers low-interest loans up to $2 million for eligible small businesses.

Military reservists and National Guard members understand how to prepare for the unexpected. They know they may have to deploy at any time and leave their family and business behind.

Military reservists and National Guard members facing economic hardships due to deployment can apply for an SBA loan.

MREIDL Loan Details

To be eligible, the business owner or key employ must have been called to active-duty status, and, as a result, cannot meet their ongoing business expenses. This type of loan gives businesses the funds they need to keep going until the service member returns.

The interest rate for an MREIDL loan is 4%. Loan maturity for disaster loans is 30 years.

However, the actual loan maturity depends on the borrower’s ability to repay the loan.

You must show have collateral for amounts over $50,000. The SBA won’t turn down a loan based solely on lack of collateral. But they do require you to put up the collateral you have, including real estate.

SBA Express Loans

SBA Express loans allow borrowers to obtain up to $350,000 structured as a line of credit or a term loan. These loans move fast.

The approval period ranges from 24 to 36 hours. This is much faster than the normal SBA approval process.

The paperwork is less involved and more straightforward as well. Lenders determine which candidates qualify for a loan.

The SBA Veteran’s Advantage Program waives upfront guaranty fees for qualifying veterans.

Veterans Business Fund

The Veteran’s Business Fund is a resource for veterans who need funding to open or expand a small business or franchise. This 501(c)(3) nonprofit fund relies on donors and provides veterans business loans with favorable terms.

This fund isn’t meant to fund the business completely. Instead, this loan is based on the business owner’s personal equity and is a supplement to other types of small business loans.

Service-Disabled Veterans

The Service-Disabled Veteran-Owned Business Contracting Program (SDVOSB) helps veterans who own small businesses and suffered an injury in the line of duty. The SBA helps these veterans secure government contracts within the SDVOSB program.

These aren’t traditional small business loans or grants. Instead, the SDVOSB initiative puts a variety of jobs on the market specifically for veterans.

VA Loan Eligibility

Active military personnel, veterans, service-disabled veterans, and their current spouses or widows are eligible for VA loans. Veterans who receive a dishonorable discharge aren’t eligible.

Active-duty personnel within 12 months of separation or retirees within 12 months of retirement may qualify for an SBA Express loan. National Guard members and reservists may qualify as well.

Widowed spouses of veterans who died during service or due to service-related disabilities are eligible.

Civilians are eligible for SBA 7(a) loans under traditional terms. They are not eligible for the discounted guaranty rates the SBA provides for veterans.

Eligible Businesses

A qualified veteran must own at least 51% of the business. Most types of businesses qualify as long as they don’t involve a pyramid scheme, lending, or gambling.

Qualifying businesses must be for-profit. Non-profits aren’t eligible for VA loans.

Loan Proceeds

You can use the proceeds of an SBA loan for most business purposes. These business proceeds include:

  • Working capital for your business
  • New equipment
  • Covering start-up costs
  • Hiring management
  • Buying real estate
  • Buying inventory
  • Preparing to sell goods or services to the government
  • Expanding your business
  • Preparing your business for your deployment
  • Recovering from natural or declared disasters

What’s the Amount I Can Borrow?

To some extent, the amount of money you can borrow depends on the lending institution. Even if you qualify for a larger loan, the SBA guarantees loans up to a certain limit.

The SBA provides a guarantee of 85 percent of loans up to a maximum of $150,000 or a 75 percent guaranty of what you borrow between $151,000 and $3.75 million. SBA Express loans have a 50% guaranty.

The Guaranty Program

The SBA does not actually loan money. Banks, credit unions, or other lending institutions make loans to veterans. The federal government guarantees these loans.

If you borrow less than $25,000, you don’t need collateral. If you borrow between $25,000 and $350,000, you may need to show collateral.

Normally, interest rates range between 2.25% and 4.75% over the prime interest rate. It’s always a good idea to try and negotiate a lower interest rate with your lender.

The SBA has local offices in every state. If you need assistance finding a lender, they can help you.

Resources for Veterans

  • Boots to Business is a free SBA program that trains veterans to become business owners.
  • Boots to Business Reboot offers business training to veterans, their spouses, National Guard members, and their spouses.
  • Patriot Boot Camp is a non-profit providing business training to veterans and their spouses.
  • Bunker Labs is a non-profit created by veterans to help other veterans and their spouses who hope to start or expand a business.
  • Veteran Women Igniting the Spirit of Entrepreneurship (V-WISE) provides business training for female veterans and their spouses.

Types of Small Business Loans

Although applying for an SBA loan takes some time and effort, it’s worth it for many veterans, service members, and their families. There are various types of small business loans to consider.

SBA loans help provide a path for those who serve or have served our country to live the American Dream by owning their own small business.

If you are thinking of starting or expanding a business, our loan experts would love to assist you. Contact us today.