There are specialized business loan programs for veterans that are offered exclusively to active and former members of the U.S. military that offer significant benefits. Getting the best possible business loan for military veterans is a key part of making sure that those who served in one of the five military branches are able to set up businesses for success. After all, starting a business can be a challenging and rewarding endeavor, especially for veterans who have recently transitioned out of military service.
In this post, we will explore some of the top business loan options available to veterans, including those offered by the Small Business Administration (SBA), traditional financial institutions, and online lenders. We will also discuss the key factors to consider when choosing a business loan, so you can make an informed decision about the best option for your business.
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SBA Resources for Veterans
The U.S. Small Business Administration (SBA) offers loan programs and other programs to help small businesses access capital and support. SBA loans are offered through participating lenders, such as banks, and are backed by the SBA. Popular SBA loan programs include the SBA 7(a) Loan Program, the SBA 504 Loan Program, and the SBA Microloan program. SBA loans typically have competitive interest rates and flexible repayment terms.
On top of each of these loan programs, the SBA offers a large number of programs and resources to veterans of the American armed forces.
Office of Veterans Business Development (OVBD)
The OVBD works to increase awareness and understanding of the unique challenges and opportunities faced by veteran-owned small businesses and to identify and promote policies and programs that support entrepreneurship and the success of these veteran small business owners. The office is operated within the SBA and functions as the SBA’s go-between with the veteran business community.
The OVBD provides a range of resources to support veteran entrepreneurs as they start and grow their businesses, including training, mentors, counseling, and access to capital. Through these efforts, the OVBD aims to increase the number of veteran-owned small businesses and enhance their competitiveness and success in the marketplace.
You won’t find any business financing offered directly by the OVBD. Instead, the office functions as a conduit for resources, education, and assistance. For example, the Boots to Business program is a series of courses offered to service members, veterans, reservists, and military spouses. Courses include an introduction to business ownership, how to conduct market research, and, yes, financing a business.
SBA Loan Programs
The SBA doesn’t directly fund specific veteran small business loans. Or any other loans, for that matter. Instead, the administration guarantees loans offered by third-party lenders. The government guarantee means these loans are less risky for lenders. Less risk means the lender can offer lower interest rates and more favorable repayment terms on larger loan amounts.
There are three main SBA Loan programs available to veterans and non-veterans alike:
SBA 7(a) Loans
Small Business Administration (SBA) 7(a) loans are provided by participating lenders, such as banks and credit unions, and are guaranteed by the SBA. The purpose of the 7(a) loan program is to help small businesses obtain financing when they may not be eligible for traditional loans from banks.
The 7(a) loan program offers a wide range of loan types, including term loans, lines of credit, and export loans. The terms of the loans vary, but generally, they have long repayment terms and low interest rates compared to traditional bank loans.
The SBA also offers a variety of other loan programs under the 7(a) umbrella, including the SBA Express Loan program, which provides faster turnaround times for loan applications, and the Community Advantage program, which helps small businesses in underserved communities access capital.
SBA 7(a) Loans are their most popular form of funding, and the process of acquiring one can be arduous and long. However, they’re typically the least expensive form of funding available. To qualify, your business must meet several eligibility requirements, including some annual revenue, must show how you plan to use the money, and your credit score will need to be strong. There’s no stated minimum credit score according to the SBA, but the application process is intended to weed out the companies most likely to default, meaning that taxpayer dollars are used to repay the debt.
SBA 504 Loans
The SBA 504 loan program is designed to help small businesses acquire fixed assets, such as real estate, equipment, and machinery. These loans are structured as long-term financing, with repayment terms of up to 20 years for real estate and 10 years for equipment. The SBA 504 loan program is managed by Certified Development Companies (CDCs), which are nonprofit organizations that work with participating lenders to provide financing to small businesses.
The SBA 504 loan program offers several advantages for small businesses, including low down payments, fixed interest rates, and long repayment terms. These loans can be used for a wide range of purposes, including purchasing or renovating commercial real estate, purchasing or upgrading equipment, and refinancing existing debt.
SBA Microloans
The SBA microloan program is designed to provide small businesses with access to loans of up to $50,000. These loans are provided by intermediary lenders, which are nonprofit organizations that receive funding from the SBA to provide microloans to small businesses.
The SBA microloan program offers a variety of loan products, including term loans, lines of credit, and short-term loans. The terms of these loans vary, but generally, they have shorter repayment terms and higher interest rates than other SBA loan programs.
The SBA microloan program is geared towards small businesses that have been in operation for at least six months and have a solid business plan. To qualify for an SBA microloan, a small business must meet certain requirements, such as being for-profit, operating in the United States, and meeting size standards set by the SBA.
SBA Veterans Advantage
If your business is owned and operated by individuals who are honorably discharged veterans, active reservists, active duty, or the spouse of any of the above, you may be eligible to take part in the SBA Veterans Advantage initiative.
This initiative provides reduced fees and costs associated with SBA Loans for qualifying businesses, which makes access to that capital easier for veteran business owners.
Veterans Business Outreach Center (VBOC) Program
The Veterans Business Outreach Center Program is administered by the SBA and provides free training programs and resources to help vets start and grow their businesses. It also offers access to a network of business advisors who can help veterans navigate the loan process and connect with potential lenders.
In addition to connection with capital, the VBOC Program offers resources like transition assistance for those preparing to end their military service, business plan preparation (which is sometimes necessary for certain lenders), and feasibility analysis to ensure that veteran-owned businesses are being set up in markets that will lead to success.
Military Reservist Economic Injury Disaster Loan (MREIDL) Program
This program is specifically designed for small businesses that have experienced an economic injury as a result of the deployment of an essential employee (including the business owner) in the military reserve. It offers low-interest working capital loans to help these businesses meet their financial obligations and maintain their operations during the deployment.
Interest rates for these loans are extremely low (4%), and collateral is required for loans greater than $50,000.
Military Financial Institutions
Navy Federal and USAA are primary examples of financial institutions specifically for active duty service members and veterans.
Navy Federal provides business lending, including checking and savings accounts, credit cards, and loans. In addition to their low-cost funding for veterans, there’s no cost to joining the credit union: instead, you must receive an invitation from an existing member.
USAA doesn’t provide a direct business loan, but its low-cost personal loans could function as startup funding if such a move is necessary. They’re particularly helpful if your personal credit score is much higher than your business credit score. USAA membership requires that you’re a veteran, an active duty military member, or the family member of someone fitting that description.
Military Investment Groups
There are also several groups dedicated to investment exclusively in businesses owned and operated by veterans. For example Hivers & Strivers Capital is an investment group able to contribute $100,000 to $1,000,000 in businesses run by military veterans.
Types of Small Business Financing
Whether you’re a veteran or not, there are a number of types of loans worth looking into even beyond the SBA. Small business owners should look through all possible financing options before deciding where they should seek out their funding.
Term Loans
A business term loan is a type of loan that provides a lump sum of financing to a small business for a specific period of time, typically with a fixed interest rate. Business term loans are typically used to finance large purchases or investments, such as purchasing equipment or real estate, or to cover operating expenses during periods of slow revenue growth.
Business term loans are typically provided by banks and other financial institutions, and they may require collateral, such as real estate or equipment, to secure the loan. The terms of a business term loan, including the repayment period and interest rate, are typically negotiated between the lender and the borrower.
Business Lines of Credit
A business line of credit is a type of financing option that allows a business to borrow a certain amount of money from a lender, up to a predetermined limit. The business can then draw on this credit line as needed, making payments and borrowing additional funds as necessary. In a more traditional form of business lending, you’d receive the loan upfront.
The lender charges interest on the borrowed funds and the business is required to make regular payments on the debt. Lines of credit can be secured, meaning they are backed by collateral such as real estate or equipment, or unsecured, meaning they are not backed by collateral. Business lines of credit are useful for businesses that have fluctuating cash flow or need to borrow money on an as-needed basis for short-term expenses or to take advantage of business opportunities.
Business Credit Cards
Business credit cards are a type of credit card that is specifically designed for use by businesses, rather than individuals. They are issued in the name of the business and can be used to make purchases, pay bills, and access cash advances.
Like personal credit cards, business credit cards typically have a credit limit, which is the maximum amount that can be charged to the card at any given time. Business credit cards often have rewards programs that allow businesses to earn points or cash back on their purchases.
They may also offer additional benefits such as travel insurance, extended warranties, or concierge services. Business credit cards can be a useful tool for managing the day-to-day expenses of a business, as well as for building the credit history of the business.
Alternative Financing: Merchant Cash Advances
While not legally considered a loan, a merchant cash advance is a type of financing option in which a business receives an advance on its future credit card sales. The advance provider advances the business with a lump sum of cash, and the business agrees to pay back the advance plus fees over time by deducting a percentage of its daily credit card sales until the advance is paid in full.
Merchant cash advances are often used by businesses that need quick access to cash and may not qualify for traditional loans due to bad credit or lack of collateral. Less expensive, more traditional loans might not be available to startup businesses, since the length of credit history is one of the key factors contributing to your credit score. New businesses sometimes feature healthy income but poor credit for this reason.
MCAs can be an expensive form of financing, with fees that are often higher than those of traditional loans. It is important for businesses to carefully consider the terms and costs of a merchant cash advance before deciding if it is the right financing option for their needs.
