The 18.2 million military veterans in the United States learned a number of abilities that are helping veterans all over the country be very successful small business owners. Their time in the military and the skills they’ve developed give them a distinct perspective, which many use, after their service, to start amazing businesses. In much the same way their small business counterparts often leverage borrowed capital to fuel growth and fund other business initiatives, these veteran-owned businesses do the same thing. Fortunately, there are small business loans and grants set aside for military veterans.
How do I qualify for a VA business loan?
Generally, to qualify for federal grants, small business loans, or other grants for military veterans, you must fall into one of the following categories:
- Honorably Discharged Veterans (some grants may specify a particular conflict or time period, e.g. post-9/11 era)
- Service-Disabled Veterans
- Active Duty Military service member participating in the military’s Transition Assistance Program (TAP)
- Reservists and National Guard Members; or
- Current spouse of any Veteran, Active Duty service member, or any Reservist or National Guard member; or widowed spouse of a service member who died while in service or of a service-connected disability.
In addition to your status as a veteran (described above), if you’re looking for a small business loan, you’ll need to meet the lender’s creditworthiness criteria as well. The SBA loan guarantee program is probably the most comprehensive program for veterans, but there are others.
The better your personal credit score and business credit history the better when applying for the low interest loans associated with the SBA. If your personal credit score is below 650, it is unlikely you will qualify for a loan, otherwise there are some additional documents you’ll need to complete you loan application in addition to your veteran-related documentation.
- At least three years of business and personal tax returns
- Financial statements
- Income projections
- Business license and certificates
- A business plan
- An collateral
The SBA is not a lender, but works with traditional banks that offer the SBA-guaranteed loans. With that in mind, you should also be prepared to meet the qualification criteria required by the individual bank you are working with. If you are unsure about which banks and credit unions in your area work with the SBA, the SBA’s Lender Match tool will help connect you to the lenders in your area.
The SBA isn’t the only place to get a small business loan if you’re a veteran. Many lenders offer loans to veterans, although they may not be offered exclusively to veterans like the SBA’s loan programs and you’ll need to meet the creditworthiness requirements of those individual lenders.
Can I get a VA business loan with bad credit?
Although a veteran can find financing with a less-than-perfect credit profile, you should expect to pay higher interest rates with shorter terms. To give you an idea of what’s available outside the SBA, here are some things to consider.
- Qualifying for a conventional bank loan will usually require a personal credit score above 680 (preferably into the 700s)
- Online lenders typically require a personal credit score of 600 or better (although some will go lower)
- Most non-traditional lenders, like online lenders, will require at least a year in business (although there are some that will accept six months), $100,000 in annual revenue, and sufficient cash flow to service debt.
- Specifically identified collateral is not a requirement for many non-traditional lenders, but they will often require a general lien and a personal guarantee.
You should expect a strong personal and business credit profile will be necessary to get the best interest rates and most favorable terms when looking for a small business loan.
In addition to financing, with a weak credit profile, you might want to consider crowdfunding as an option if your business or product has enough appeal to attract the support of the crowd. There are crowdfunding options that don’t require a strong credit profile and are solely based on whether or not you can attract the crowd to your business idea.
Choosing the right type of VA business loan
A veteran that meets the creditworthiness requirements associated with the SBA will likely find the lowest interest rates and more favorable loan terms there. If that doesn’t describe your business’ credit situation, you’ll need to evaluate the other loan offerings available to you based on the need you’re trying to fill, the costs associated with the loan, and the potential benefit the borrowed capital will likely bring your business.
To determine the best type of financing for you, you’ll need to ask yourself a handful of very important questions:
- What is the loan purpose? Are you borrowing to fill a short-term need for something like purchasing inventory, or are you trying to fill a longer a longer term need like expanding into a new location across town. You loan purpose will help you drive the rest of the discussion.
- How much money are you looking for? Once you know your loan purpose, it’s easier to answer this question. And, your loan amount will help you know where to look. Traditional lenders prefer to work with larger loan amounts closer to $1 million, so if you’re looking for $30,000 or $40,000 the bank might not be a good fit. Online lenders, on the other hand, are geared to work with smaller loan amounts.
- What loan term makes the most sense? This might be an oversimplification, but most people wouldn’t choose a 30-year auto loan. The same is true with business financing. The loan term should complement the loan purpose. For example, purchasing quick-turnaround inventory with a 5-year term loan might not make sense when it ties up money for five years to fill a six month purpose.
- How much can you afford to pay in loan costs? Regardless of whether or not the costs of the financing your considering is expressed in APR, interest rate, factor rate, or something else, you should consider the total cost of the loan and it’s impact on your loan purpose. The most savvy borrowers typically look for a 5X return for every dollar borrowed, meaning if you can meet that benchmark, more expensive financing from alternative sources can potentially be justified if you can’t qualify for a low-interest loan.
Choosing the right kind of VA financing can be a challenge if you don’t ask yourself these important questions early in the process.
Timeline to get a VA business loan or grant
Depending on the type of financing you determine is right for your veteran-owned business, the timeline will vary. It can take several weeks or months to navigate the process with the SBA, while some online lenders can have an answer for you the day you apply and funds in your account within 24 hours after that. For many borrowers, the time it takes to finance is a primary consideration, even if the loan expense is higher.
Here are 10 viable options for a veteran-owned business to consider when looking for access to capital.
The 7(a) loan is the Small Business Association’s primary and most popular program. With longer terms and potentially lower down payments than other financing options, it’s a great option when you’re looking for capital for your small business. Typically, the SBA, or many other lenders, require an upfront guarantee fee. For SBA 7(a) loans made to qualifying Veteran owned businesses under $125,000, the upfront guarantee fee will be $0.
As the loan amount goes up, the SBA may still require a fee, but at a discounted rate compared to those for non-veteran owned businesses.
In the situation that an essential employee has been called to active duty, the business may qualify for MREIDL. Funds from this loan program can be used to “provide the amount of working capital needed by a small business to pay its necessary obligations as they mature until operations return to normal after the essential employee is released from active military duty.”
The loan amount can be up to $2 million based on the SBA’s assessment, and any loans over $50,000 collateral, in the form of real estate when possible.
3. StreetShares Foundation
StreetShares Foundation was established with veteran entrepreneurs in mind. Apart from offering lines of credit, term loans, and government-contract financing to cover the cost of payroll and equipment before invoices are paid. This year, they awarded $15,000 after an application period to a veteran-owned small business. Keep an eye on them for future reward opportunities and check out their current financing options.
Hivers and Strivers is an angel fund looking to assist military academy graduates with their startups. Their investments range from $250,000 to $1 million per round, and they may syndicate with other groups for larger investments. If you’re a graduate of one of the military academies and have a small business idea, you can make your submission on their website.
The Department of Veterans Affairs offers potential assistance to businesses owned by economically disadvantaged individuals through their Office of Small and Disadvantaged Business Program. Their goal as a department is to provide these businesses with as many government contracts as possible. While these are not government grants or loans, these contracts could mean money in the bank if your business qualifies.
Be sure to register with their office. Once your business has been verified, it will be added to their directory of small businesses and could be called upon for a government contract.
6. Nav’s Small Business Grant
Nav understands the challenges of starting, financing, and running a small business. To give small business owners a lift, Nav recently launched the $10,000 “Legitify Your Small Business” grant. While you don’t have to be a veteran to apply, veterans have participated in the grant. We’d love to hear about your small business. Keep an eye out for the next application round to open, and check your business and personal credit score for free with Nav.
Meant for non-profit organizations, Department of Veterans Affairs Small Business Grants are aimed at helping military veterans get their operations up and running. Like any other grant money, this does not have to be repaid, but will require strict compliance on the part of your business. Be sure to review the guidelines before applying to be sure your business is in compliance.
If you suffer from a service-connected disability and have the desire and plan to run your own business, you could qualify for assistance from the Vocational Rehab & Employment Ownership Track. Along with the requirements listed above, you must have an employment barrier or handicap, be enrolled in the VR&E, and your disability must make it difficult for you to obtain suitable employment.
Be sure to check the requirements and application to see if you could get help getting your business off the ground.
Similar to the VA’s OSDBU program, the Service-Disabled Veteran-Owned Small Business Program aims to provide businesses owned by veteran entrepreneurs with contracting dollars. The federal government sets aside at least 3 percent of contracting dollars for set-aside contracts for small businesses owned by disabled veterans. Again, while these contracts aren’t government grants, they can help a struggling business get on their feet.
Just like the OSDBU, you should apply for verification through the program before being added to a directory to be considered for assistance or certain contracts.
10. LendingClub Veteran Loan
LendingClub is one of many private lenders offering special benefits for veterans. Their small business loan for veterans has a term of one-to-five years, with borrowing limits of $5,000 to $300,000. You must have a credit score of at least 600 and a business that has been in operation for at least two years with annual revenue of at least $50,000.
VA Business Loans and Grants Summary
While funding via grants or small business loans is often top of mind for any small business owner, there are other resources that can help veterans looking to start a business or level up. Veteran-owned businesses can seek out their local veterans business outreach centers for various resources for veterans, including training programs for adjusting to civilian life, technical assistance, business training, and other tools that may not be available at traditional small business development centers.
They may also have more information on VA loans including VA business loans, various grant programs, and ways to help your business dream get rolling.