This article was reviewed and updated on July 20, 2020.
Those that serve our country deserve to be supported both before, during, and after service. What if entrepreneurship is their dream? Where is funding available to start or grow a veteran-owned business?
Here are four places to find veteran business loans:
Government loans for veterans
The first place to look in your search for business loans for veterans is the entrepreneur portal on the Veteran’s Administration (VA) website. These programs are managed by the Small Business Administration (SBA) through the Office of Veteran’s Business Development (OVBD).
At various periods of time the government has offered breaks on fees for certain SBA-guaranteed small business loans for veterans. And it also offered a veteran business loan in the past. Authorization for these programs has fluctuated over the years.
Recently, the CARES Act that went into law March 27, 2020 made permanent certain fee waivers for SBA loans. This means that SBA loans (whether veteran-specific or not) may continue to be a good small business financing option for veteran entrepreneurs.
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SBA 7(a) Loan
This loan isn’t specifically aimed toward veterans, but it is the most popular and widely-used loan program through the SBA with favorable loan terms. If you’re looking for SBA loans for veterans, this is where you should start. 7(a) loans may be used for a variety of purposes including working capital; new construction, expansion or renovation, or to purchase land or buildings; to purchase equipment, fixtures, leasehold improvements; to refinance debt for compelling reasons; or for a seasonal line of credit or inventory. A few lenders will even make 7(a) loans to start a business.
Like most loans through the program, an SBA 7(a) loan requires applicants to be U.S.-based, meet size standards, operate for profit, and have something of their own equity or assets to invest or use for collateral.
Most SBA loans require good credit scores, and the lender will check credit on all owners with 20% or more ownership. To be eligible you must pledge collateral if it is available and you have to demonstrate that you can’t get similar funding from other sources. (Though on that last point, your lender can work with you to ensure you meet this “credit elsewhere” test.)
With the exception of Disaster Loans, SBA loans are made by individual lenders, not by the SBA. So you’ll need to work with a lender approved by the SBA to make these loans. Keep in mind that each lender must ensure the borrower meets the SBA standards required to guarantee the loan, but may have additional requirements as long as they don’t discriminate on a prohibited basis. This means a veteran small business owner who finds they can’t get an SBA small business loan through one lender may be able to find one through a different lender.
Under the SBA 7 (a) umbrella are several, more-specific loan products. They include:
SBA Express –Loans of up to $350,000 with a fast decision (within 36 hours). Term loans and revolving lines of credit are often offered through this program, for a term of up to seven years. (If you’ve heard of the Patriot Express Loan program for veterans, that closed several years ago. The SBA Express program is the closest thing to that program currently available.) They may be used for the same purposes as 7(a) loans, including working capital.
Important! As a result of the CARES Act for all SBA Express loans to veteran-owned small businesses approved on or after March 27, 2020, the upfront guaranty fee will permanently be zero.
In addition, the CARES Act increased the loan amount under the SBA Express Loan Program from $350,000 to $1,000,000 for loans approved from March 27, 2020 through December 31, 2020. The maximum loan amount under the SBA Express Loan Program will automatically revert to a maximum of $350,000 effective January 1, 2021.
And SBA Express loans approved on or after March 27, 2020 may be increased up to a maximum of $1,000,000 in the aggregate for all outstanding SBA Express loans to the borrower (and its affiliates). After December 31, 2020, an increase to an SBA Express loan that would bring the aggregate SBA Express loan approval amount(s) to a level exceeding $350,000 will not be permitted.
Export Express – If you are in the export business or hope to be, you can consider this loan program. The Export Express loan offers funds of up to $500,000 for qualified applicants; decisions are made within 24 hours. Collateral requirements are similar to non-SBA loan programs.
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SBA Veteran’s Advantage
While this is not a loan program, but rather a “discount” for veteran entrepreneurs who get certain SBA loans by offering relief or reductions for certain SBA loan program guaranty fees. To be eligible for the discount, the business must be at least “51 percent owned and controlled by someone in one of the following groups:
- Honorably discharged veterans
- Active Duty Military service member eligible for the military’s Transition Assistance Program (TAP)
- Service-disabled veterans
- Reservists and active National Guard members
- Current spouse of any veteran, active duty service member, Reservist, National Guard member, or the widowed spouse of a service member who died while in service or as a result of a service-connected disability.”
The lender is ultimately responsible for approving or denying an application, but must follow SBA minimum guidelines.
The Military Reservist Economic Injury Disaster Loan (MREIDL) is made specifically for military reservist business owners who get called into active duty and need help keeping their business afloat in the meantime. Like other SBA offerings, businesses are expected to look elsewhere for funding first and are only allowed to apply if they cannot fund their own recovery. If they are eligible for a loan or other business line of credit – and it won’t cause undue hardship to pursue these – federal law requires vets to start there, first.
The funds through this program max out at $2 million and can be used for “ordinary and necessary operating expenses” that the military reservist can no longer meet because of deployment or active duty activities. If the business owner has business interruption insurance (many do), they need to tap out that insurance first. The $2 million dollar threshold may also be waived if the business employs a significant number of people; business failure would have a ripple effect on a community, for example. Money can be used to keep the business going but it not designed as a substitute for regular commercial debt or to expand the business.
Military reservists can apply once they get their notice of expected call-up, and they can file for up to one year after they are discharged or released from active duty. Collateral is required for large loans (over $50,000). The interest rate is currently 4%, and repayment is usually up to 30 years. The SBA can change terms, however. The SBA makes these loans, not banks.
And in case you’re wondering, there aren’t any VA small business loans or VA SBA loans. VA home loans can help veterans finance homes to live in, but the VA does not offer a small business loan program.
Members of the military, veterans and their spouses may have relationships with credit unions or financial institutions that serve the military such as Navy Federal Credit Union, USAA, Pentagon Federal Credit Union, Security Service Federal Credit Union, Service Credit Union and others. These financial institutions may offer business loans to their members.
Keep in mind that traditional financial institutions often require strong qualifications including:
- 2+ years in business
- Good credit scores (personal and/or business)
- Documented revenues and financial statements
If you are eligible to open an account with one or more of these financial institutions, it’s certainly worth inquiring, though, to see whether they can help you obtain a veteran business loan to start or grow your veteran-owned business.
Many online lenders make loans to veterans, even if the products they offer aren’t exclusive to that audience. In other words, don’t be afraid to cast a wider net as you explore financing options.
- Streetshares is an online lender that has helped many veteran-owned businesses. Although you don’t have to be a member of the military to use their small business loans, many of their members are veterans.
- Kiva US makes 0% no-fee loans to small business owners, including veterans. You don’t have to be a veteran to apply for one of their microloans but there are some individuals who choose to support veteran entrepreneurs by helping to back their loans.
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Veteran Entrepreneur Programs
There are a number of free veteran entrepreneurship training programs that can provide training and assistance to new and established businesses. While they don’t lend money directly, they can often provide resources that can help you find or qualify for funding. At a minimum, you’ll be able to network with other veteran business owners and find out where they are having success finding financing. They may also alert you to small business grants for veterans.
These organizations may help you tap into local programs available through Community Development Financial Institutions (CDFIs) or other sources of funding for traditionally disadvantaged or underserved small business owners. These nonprofit lenders are often more flexible than traditional lenders when it comes to credit scores, time in business and revenues. But they will still want to make sure the business will succeed and pay back the loan, so they often offer technical assistance along with funding.
An example of one of these programs is Veteran Launch, which is a program of Main Street Launch. It offers small business loans to new and existing companies for up to