|All content presented here and elsewhere is solely intended for informational purposes only. The reader is required to seek professional counsel before beginning any legal or financial endeavor.|
As a veteran starting or expanding a business, you may want to consider applying for an SBA loan through the Small Business Administration (SBA). SBA loans for veterans provide access to funding for business growth, start-up, and expansion costs. They’re designed to help veterans and their families get the support and resources they need to be successful with their business ventures. In this article, we will discuss what SBA loans for veterans are, the criteria for qualification, and the steps you need to take to get one.
- SBA loans are small business loans backed and partially funded by the Small Business Administration.
- To qualify for an SBA loan for veterans, borrowers must be a current or past service member of the U.S. military.
- SBA loans offer veterans more favorable terms and interest rates than traditional loans.
Understanding SBA Loans for Veterans
The Small Business Administration (SBA) has a goal of helping all small business owners, but they do have specific programs designed with veterans in mind.
What Are SBA Veterans Loans?
SBA loans for veterans are government-backed business loans that are issued to veterans who are launching or expanding their small businesses. The SBA provides a number of different types of loans, a few built specifically for veterans (more on that down below), and others built for business owners in general.
What Types of SBA Loans Are Available to Veterans?
There are several different types of SBA loans available to veterans, each specifically tailored to the types of business needs they might have. The most common are:
- 7(a) Loan Program. While not specifically built for veterans, it can easily be used by veterans starting their businesses. This is the most popular and flexible form of loan, which can be used for business acquisitions, debt refinancing, working capital, expansion, equipment, and more.
- Microloan Program. These small-dollar loans can be used for business acquisitions, inventory, supplies, and more.
- CDC/504 Loan Program. This loan program is designed for larger, longer-term investments in fixed assets such as real estate or equipment.
- Patriot Express Loan Initiative. These provide veterans and military members with loans of up to $500,000 for small business needs.
- Military Reservist Loan. This is a loan program administered by the SBA to assist businesses that have suffered substantial economic injury as a direct result of the service of a Reservist or National Guardsman on active duty. The loan can provide up to $2 million in assistance (with terms of up to 30 years) and can be used to pay fixed debts, payroll, accounts payable, and other bills.
- Disaster Assistance Loans. This program offers veterans an opportunity to secure funding in the wake of a declared disaster.
What Are the Advantages of SBA Loans for Veterans?
For veterans looking to start a business or grow an existing small business, an SBA loan can be an attractive option because they offer:
- Competitive rates. Since SBA loans are partially guaranteed by the government, lenders are more likely to offer competitive interest rates. This makes the cost of borrowing more manageable and the ability to qualify easier compared to other loan products.
- Lengthy terms. Unlike other forms of financing, SBA loans offer lengthy repayment terms. Depending on the loan type, veterans can receive maturity periods of up to 10 years for real estate loans and up to 25 years for fixed assets. This makes it easier to structure finances and ultimately manage cash flow.
- Minimal collateral. SBA loans for veterans require minimal or no collateral for loans amounts up to $25,000. This is especially beneficial for veterans just starting out with their businesses and looking for financing with limited assets.
- Extra benefits. The SBA has resources available for veterans to ensure their success, including free training and mentoring, counseling, and business development services.
How Much of a Loan Can Veterans Get Through the SBA?
Through the SBA, veterans can get loans for up to $2 million for businesses or $500,000 for real estate or other tangible assets. The exact amount of the loan will depend on factors such as the veteran's creditworthiness and financial situation, the purpose of the loan, and the type of collateral being offered (if any). The SBA doesn't make loans directly to veterans, but it works with lenders to make sure they’re able to get the loan they need.
The SBA also offers the Patriot Express Loan Initiative, which provides veterans and military members with loans of up to $500,000 for small business needs. The Patriot Express Loan is designed to provide veterans with more access to capital, as well as more favorable terms than they could get through a conventional lender.
Where Can Veterans Get SBA Loans?
Veterans can get SBA loans from a variety of sources, including traditional banks and credit unions, as well as specialized lenders that are specifically geared toward veterans.
What Can a Veterans SBA Loan Be Used For?
Veterans SBA loans are versatile and there are many different ways a loan can be used in order to start or grow a business. A Veteran can use a Veterans SBA loan for start-up or expansion costs like:
- Buying or improving a business location.
- Buying equipment or inventory.
- Hiring additional staff.
- Creating a marketing plan.
In addition to business-related expenses, Veteran SBA loans can also be used to refinance existing debt from a qualifying lender. This could help reduce your interest rates, so you can save money in the long run.
How Hard Is It for Veterans to Get an SBA Loan?
Getting an SBA loan as a veteran is not incredibly difficult, but it does require a few steps. To start, you'll need to be able to demonstrate both your qualifications as a veteran and your creditworthiness as a borrower.
You'll need to fill out an SBA loan application and provide evidence of your service record. As with any type of loan, you'll need to prove that you have a good credit score and can pay back the loan.
In addition to meeting the standard credit and financial qualifications, the SBA also requires that veterans provide a business plan and show that the loan will create or retain jobs within the local economy. The business plan should include detailed information about the type of business you plan to start, the market you plan to target, and the amount of capital you need.
What Veteran SBA Loan Rates?
Veteran SBA loans are offered at competitive rates and terms that are comparable to traditional SBA loans. The interest rate is usually composed of a base rate, plus a spread based on creditworthiness. The base rate is calculated using the SBA Prime Rate plus a spread determined by the lender.
How Long Does It Take to Get a Veterans SBA Loan?
Getting a veteran SBA loan typically takes anywhere from a few days to a few months depending on the complexity of the application and individual circumstances. The size and complexity of the loan amount and the collateral will also factor into the total time frame of a veteran SBA loan application.
SBA Veterans Loan Requirements
Eligibility for SBA veterans loans depends on a number of factors. Veterans must have satisfactory credit and be able to demonstrate their ability to repay the loan. Here are the specifics for eligibility requirements for SBA veterans loans:
- Must be a veteran or be a current or former Reservist or National Guard members.
- Have creditworthiness and demonstrate repayment ability.
- Provide a personal investment of at least 10% of the loan amount (for loans over $25,000).
- Businesses must meet SBA size standards
- Usually, businesses must have been in operation for a certain minimum amount of time, often a few months to a few years.
How to Apply for SBA Veterans Loans
Applying for an SBA veteran loan isn’t all that complicated. It’ll be pretty similar to applying for other types of loans.
- Determine if you are eligible for an SBA Veterans loan. You must be a veteran who has served an honorable discharge in the military, have a good credit score, and have an identifiable need for the capital.
- Gather all of the documents needed to fill out the SBA loan application. This includes proof of income, bank statements, tax returns, and employment verification.
- Apply for the SBA loan with a lender that is approved to provide them. The application process differs by lender, so check with the lender ahead of time to know what is needed.
- Submit the application and wait for a response. Responses can take anywhere from a few weeks to a few months depending on the lender and the type of loan you are seeking.
- If approved, work with your lender to sign the loan documents and submit a plan for how you will use the loan’s proceeds.
- Begin using the loan immediately to help grow your business or fund the project you have in mind. Monitor your progress to ensure that you are staying on track and making the payments on time.
Alternatives to SBA Loans for Veterans
For veterans who may not meet the requirements for an SBA loan, there are still plenty of other financing options available.
Online loans are short-term loans with an easier application process. They are provided by private lenders and often have less stringent requirements than an SBA loan. However, they may have higher interest rates and may require collateral.
Business Lines of Credit
Business lines of credit are similar to credit cards. Businesses are given an approved amount and can draw on it when needed to cover operational costs or invest in growth opportunities.
Equipment financing is just a business loan specifically to purchase equipment or machinery for a business. The loan can be used to purchase any type of equipment from a variety of vendors.
Microloans are, as you might guess, small loans with lower interest rates and more flexible terms than traditional loans. They’re designed to help small businesses start up or expand.
Business Credit Cards
Business credit cards are a great way to access funds quickly and easily. They’re similar to personal credit cards, but with rewards and perks specifically tailored toward businesses. These are meant to be used for short-term financing that you can pay back quickly before the interest catches up with you.
Business Grants for Veterans
Several organizations provide grants to veterans for business start-ups or expansion. These grants can provide capital without requiring repayment, but are typically competitive and highly sought after.
Crowdfunding is another popular way to access capital for a business idea. Entrepreneurs can post their ideas on crowdfunding sites and individuals can contribute towards the project. This is a great way to access funds without requiring a loan or grant.
How to Find the Best Business Loans for Veterans
Finding the right business loan as a veteran can be tricky since veterans have access to a range of different financial products and specialized loan options. Here are a few steps to help you find the best business loan for your needs:
- Research your many different options. Veterans can research major lending sources, such as banks and credit unions, as well as specialized lenders offering loans only to veterans.
- Compare your loan options. After narrowing down the list of options, veterans should tailor their comparisons to the features that best meet their needs, such as the loan’s interest rate, terms, and repayment options. This also gives you an apples-to-apples comparison.
- Check out small business resources. Finally, veterans should take advantage of the resources available to them through the Small Business Administration (SBA) or their local Small Business Development Center (SBDC). These organizations provide valuable resources to help veterans find the best financing products and make informed decisions.
Additional Resources for Veteran Business Owners
Being a veteran business owner comes with a host of unique challenges, and navigating the SBA loan process can be daunting. Fortunately, there are multiple resources to help veterans through the process and get the best loan they can.
- The Small Business Administration’s (SBA) Office of Veterans Business Development offers counseling and mentoring services, access to business training, technical assistance and other resources to veterans, service-disabled veterans, and active-duty service members.
- The Office of Small Business Programs at the Department of Defense provides business counseling and loan program information to veteran entrepreneurs.
- Small Business Development Centers (SBDCs) provide management counseling and specialized services for veterans and veteran business owners. The Centers offer help with business plans, financing, marketing, inventory control, and much more.
- The National Veterans Small Business Coalition, operated by the U.S. Department of Veterans Affairs, is designed to help veteran business owners connect with resources that can help them grow their businesses.
- The Entrepreneurship Bootcamp for Veterans (EBV) is a training program offered through multiple university campuses around the country. It provides entrepreneurs with the tools and resources to achieve their business goals and provides a pathway for a successful future.
Once you have decided that a veteran’s SBA loan is the right financing option for your business, the next step is to understand the application and qualification process. Many lenders offer simplified application processes for veterans, making it easy and convenient to apply. By educating yourself on the loan process, how to qualify, and the different types of veterans’ SBA loans available, you can make sure you find the right one for your business. With loan amounts in the millions and a variety of options available, veterans can use these loans to help fund the growth of their businesses.