Whether you’re a veteran looking to launch a brand-new business, buy an existing company, or expand the one you already own, there are many financing options available through the Small Business Administration (SBA).
In the past, the SBA offered discounts on fees and even a loan program specifically for veteran-owned businesses. Those programs have expired. With the exception of the MREIDL program, SBA loans and rates are currently the same for veterans and non-veterans. It is still worth considering one of these loan programs to finance your small business if you are a veteran.
The Small Business Administration generally doesn’t make loans directly— with the exception of loans within the Disaster Loan program. Instead, it guarantees loans made by lenders. SBA loans are designed to help small businesses that would have otherwise have trouble securing affordable access to capital. Here are SBA loan programs to consider:
Current SBA Loan Programs
The Small Business Administration generally doesn’t make loans directly— with the exception of loans within the Disaster Loan program. Instead, it guarantees loans made by lenders. SBA loans are designed to help small businesses that would have otherwise have trouble securing affordable access to capital. Here are several SBA loan programs to consider:
Military Reservist Economic Injury Disaster Loan (MREIDL)
The MREIDL program falls under the SBA’s Disaster Loan program. It provides a working capital loan of up to $2 million to help the eligible small business meet its ordinary and necessary operating expenses that it could have met, but it is unable to meet, because an essential employee was called-up to active duty in their role as a military reservist. MREIDLs are loans, not grants, and they carry low interest rates and repayment periods of up to 30 years.
There are some important guidelines to know. Collateral is required for loans above $50,000 and borrowers will need to pledge available collateral, including home equity in some circumstances. Borrowers will be required to have appropriate insurance as well. The business must not be able to get similar funding elsewhere (this is often referred to as the “credit elsewhere” test). Don’t let that discourage you from applying, though; the SBA finds that over 90% of disaster loan applicants don’t have the resources to recover without this help.
Unlike most SBA loans, MREIDLs are not available through lenders. Instead, you apply for one of these loans through the SBA’s Disaster Assistance portal.
Economic Injury Disaster Loans
Most business owners hadn’t heard of the Economic Injury Disaster Loan (EIDL) until the coronavirus crisis, even though this program has been around for a number of years. That’s because these loans are made available to businesses located within a federally declared disaster which means they are often limited in availability. But the COVID-19 crisis is a national disaster that has made these loans available to qualified businesses negatively impacted by coronavirus across the U.S. or its territories.
EIDLs for businesses impacted by COVID-19 are attractive as far as business financing goes. They carry an interest rate of 3.75% (2.75% for nonprofits) and an SBA loan payment period of up to 30 years.
In addition, the CARES Act added an EIDL grant (advance) of up to $10,000 that does not have to be repaid. The grant has been administered as $1000 per employee.
Collateral is required for loans of $25,000 or more, and a personal guarantee is required for financing of $200,000 or more. There will be a personal credit check for all loans, and a business credit check for loans above $20,000, and borrowers must have acceptable credit.
EIDLs are not available through lenders. Like MREIDLs, you apply for one of these loans through the SBA’s Disaster Assistance portal. (Note that currently the portal for COVID-19 EIDLs is closed to new loan applications except for certain agricultural businesses. The SBA is processing existing applications on a first-come, first-served basis.)
However, if your business is located in a federally declared disaster area (unrelated to COVID-19), you may be eligible for a Disaster Loan or EIDL. Disaster loans may cover physical damage to the business. You’ll find helpful information on SBA.gov, or your local Small Business Development Center (SBDC), Veteran Business Outreach Center (VBOC), or SCORE chapter can provide assistance to help you understand disaster loan programs available to your business.
SBA 7(a) Loan Program
Whether you’re a military-owned business or not, 7(a) loans are a popular form of funding. SBA 7(a) loans are available to qualified borrowers looking to secure up to $5 million in funding for working capital. Approved borrowers can use funds for a variety of purposes, including buying equipment, purchasing land or buildings, working capital, or even to refinance more expensive debt in certain cases. With 10-25 years to repay the loan (depending on the loan terms), these loans can be an attractive way to get business financing for business owners with very good to excellent credit scores.
7(a) loans are available through approved SBA lenders nationwide. All lenders must make sure borrowers meet the minimum SBA loan requirements in order for the lender to be eligible for the SBA guarantee. But beyond that, lenders may have their own preferences for the types of businesses to which they lend (as long as they don’t discriminate on a prohibited basis). That means you may need to contact multiple lenders to find the one that is the right fit.
An excellent option to streamline your search is to check out SBA loans from Smartbiz. They use technology to help you find a trusted lender most likely to fund your business. For a lower-tech option, the SBA offers a service called Lender Match where you share your loan request and get contacted by lenders.
Paycheck Protection Program (PPP) Loans
This is a loan program that falls under the 7(a) umbrella, and is part of the CARES Act which is legislation designed to provide relief for individuals and businesses impacted by coronavirus. PPP offers loans of 2.5 times average monthly payroll, up to $2 million. If the funds are spent properly (primarily on payroll, and some nonpayroll expenses such as rent, utilities or mortgage interest) some or all of the loan may be forgiven. Essentially that turns this low-cost form of business financing into a grant. Any balance not forgiven turns into a loan with an interest rate of 1% and a repayment of 2 or 5 years, depending on when the loan was approved by the SBA.
While these loans are available to all small businesses, the CARES Act explicitly referenced a desire to help veterans:
(iv) SENSE OF THE SENATE.—It is the sense of the Senate that the Administrator should issue guidance to lenders and agents to ensure that the processing and disbursement of covered loans prioritizes small business concerns and entities in underserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals (as defined in section 8(d)(3)(C)), women, and businesses in operation for less than 2 years.
You can learn more about PPP loans and find out whether they are still available to your business here.
SBA Express Loans
Think of the SBA Express Loan as a kind of short-cut for those who would qualify for a 7(a) loan but need to get their funding faster. Traditionally an SBA loan application can take weeks or months. With SBA Express loans, veterans and other business owners can benefit from getting a response from the SBA regarding their loan request within 36 hours.
The maximum Express Loan amount is $350,000, so they aren’t ideal for everyone. But many veterans don’t apply for more than that, anyway, making it an ideal choice for faster businesses financing. (According to the SBA, 73% of loans to veterans are for $350,000 or less.)
SBA 504 Loans
The CDC 504 program is popular for businesses that want to buy real estate or expand buildings. It may also be used for other projects such as purchasing or upgrading long-term machinery or equipment. These loans involve a partnership between a Certified Development Company (CDC) – a nonprofit that focuses on promoting economic development in its community — and a lender. A typical 504 loan might involve the CDC financing up 40% of project costs, the lender providing up to 50% and the borrower putting in 10— 20%.
There is no project size limit, but the SBA debenture is typically up to $5 million. Of course, with a big loan come significant requirements, including very good to excellent credit and documentation of strong revenues, company assets, collateral, and some money down in the form of a property down payment or cash security to show you can pay off the loan.
You get 10 to 20 years to repay, so it’s not quite as long as when you get a mortgage for a home, but it’s still considered long-term financing. Because of the low interest rates, the payment can be quite reasonable. For some businesses— veteran owned or not— it’s an excellent way to get significant funding for real estate purchases and large projects, including expansions.
On the other end of the funding scale is the SBA Microloan program. These microloans are among the most sought-after SBA startup loans since they can be given in smaller amounts and often don’t require collateral. (They are available to existing businesses as well.) They are more affordable than a high-interest-rate business credit card or other business financing available to newer businesses.
How much can you borrow? It depends on your unique financial situation, personal and business credit scores, and ability to repay. The maximum loan amount is $50,000, though the average loan is just around $13,000. There is a repayment period of up to six years. As a bonus, these loans often come with entrepreneurship training or assistance.
SBA Debt Relief
Due to the coronavirus, the SBA is providing payment relief in 2020. SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020. PPP loans and COVID-19 EIDLS also offer deferred payments but interest accrues.
Other Business Financing Options
If you don’t qualify for an SBA loan, or you need the money much faster than what you can get going through their often time-consuming process, it might be possible to apply for a bridge loan that can get you working capital while you wait, or until your credit situation improves. A number of online lenders provide funding to many types of businesses at different stages in their business. These lenders may make decisions in minutes, rather than the weeks it often takes to get approval for an SBA loan.
Streetshares is one such lender that focuses on the veteran-owned business market (although any qualified business may apply.) The Streetshares Foundation also has a small business grant program that offers businesses impacting veterans in a positive way the chance for $4,000 – $15,000 grants.
Business credit cards may be an option for short-term financing for your business as well. They are often available to startups as well as established businesses, as the issuer will often base the decision to issue a card on the owner’s personal credit scores and income from all sources (not just the business). While you’ll want to try to pay the balance in full to avoid interest charges, credit cards can provide much-needed help with cash flow. They also offer superior fraud protection when compared to debit cards or even checks.
How might a VA loan work into the equation? While these funds are designed for home ownership, if you’re one of the growing demographic of veteran small business owners who work from home, you can see how they can make financing our dream of owning a company, too! While not technically a VA business loan, if you’ve never owned property before, the VA home loan program can be the best first step to owning your home and establishing an excellent credit score. With no down payment and very low interest rates (plus few closing costs) it’s worth considering.
Veterans Entrepreneurship Training Programs
Just as teamwork is a crucial component of a successful military operation, getting the resources and support you need as an entrepreneur can make the difference between success and failure. In addition to seeking funding, it’s a good idea to take advantage of programs designed to help you increase your “social capital,” aka your business networks. There are many organizations dedicated to helping veterans and their families in their small business endeavors. Here are a few worth investigating:
The SBA helps facilitate and fund a variety of programs and services for veterans and their families. These include:
- Boots to Business: This is a very popular entrepreneurship training program. It is offered on military installations (including some outside the U.S.) and is part of the Department of Defense (DOD) Transition Assistance Program (TAP).
- Boots to Business Reboot is a one to two day training program available in various locations and online.
- Women Veteran Entrepreneurship Training Program (WVETP) facilitates entrepreneurial training to female veterans, service members, and spouses of service members and veterans who want to launch or scale a business. A key program is the: IVMF – Veteran Women Igniting the Spirit of Entrepreneurship (V-WISE) which is designed for women female veterans and military spouses/partners.
- Service Disabled Veteran Entrepreneurship Training Program (SDVETP) offers entrepreneurship training programs for service-disabled veterans through these grantees:
- Veteran Federal Procurement Entrepreneurship Training Program (VFPETP) is designed to help veteran business owners tap into the federal procurement system. They can get training through the Veteran Institute for Procurement (VIP)
A number of private veteran entrepreneurship training programs offer training, networking and other support. A few examples of popular programs include:
BunkerLabs is a nonprofit national network of veteran and military spouse entrepreneurs dedicated to helping the community start and grow businesses. It offers a variety of programs worth exploring.
Patriot Boot Camp is offered by a nonprofit organization that advances and supports military members, veterans and military spouses in their mission to become creators, innovators, and entrepreneurs leading the new economy.
VetFran is for those interested in owning franchises. It is a strategic initiative of the International Franchise Association.
VETRN is an executive MBA program based on the award winning Streetwise ‘MBA’, which is taught in over 70 cities across the USA. It is piloting an online program.
Office of Veterans Business Development
Part of the Small Business Administration (SBA), the mission of the OVBD is to maximize the availability, applicability and usability of all administration small business programs for
- Service-disabled veterans,
- Reserve component members, and
- Dependents or survivors.
It offers a wide variety of programs and resources to the military and veteran community including mentorship, training and counseling. SBA can also connect veteran small business owners with federal procurement and commercial supply chains. If you are a veteran who wants to start a business, or has already become a business owner, make sure you connect to your local SBA office to take advantage of these programs and resources. Visit SBA.gov/vets.
Veterans Business Outreach Centers
Veterans Business Outreach Centers (VBOCs) provide entrepreneurial development services such as business training, counseling and resource partner referrals. Services include pre-business plan workshops, concept assessments, business plan preparation, entrepreneurial training and mentorship and more. Find your local VBOC here.
Outdated Funding Options
Before we get into what’s available, it’s important to know that many of the initiatives that small business owners talk about are either defunct or have been changed into new programs. These are some of the business loans for veterans, grants, and funding paths that have been widely-used by military-owned businesses in the past.
SBA 7a Veterans Advantage
This now-defunct version of the traditional SBA 7(a) program gave SBA-backed loans to veterans, with the added perk that they only paid a portion of the fees that other borrowers paid. If a regular borrower paid 3% guarantee fees, for example, the Veterans Advantage borrower might pay just half those fees – or even 0%.
While the program is usually extended annually, there has been no news about it since the end of 2018. For now, assume you will have to get your funding elsewhere.
Patriot Express Loan
The Patriot Express loan, which was discontinued in 2013, provided qualified veterans and active-duty military members access to up to $500,000 in loan money for their businesses. There was generally low-interest rates and low to no fees for the small business loans. The application was less cumbersome than similar loan programs, giving military veterans access to approval within 36 hours.
It was a popular choice that many vets took advantage of, but the program is now defunct. Fortunately, there is a similar option through the SBA Express Loan that’s now available for everyone.
Veterans Business Fund
This well-meaning endeavor seems to have dropped off the face of the earth. The premise was to use donations to put together business loans for veterans with the purpose of giving out money at a very low interest rate.
When used as a supplement to their own capital, the Veterans Business Fund would have helped be the bridge many veteran-owned businesses needed until they could get their own bigger SBA loan. The page hasn’t been updated in years and never appeared to make the initial funding round.
VetFran Business Grant Fund
As of this writing, the page to the VetFran program seems to be offline. The original purpose of the fund was to help vets buy franchises. It’s safe to assume that the program has either stopped operating, or it’s changing somehow.
USDA Veteran and Minority Farmer Grant
This program is still around, but it’s not something that individual borrowers deal with directly. The money from the USDA Veteran and Minority Farmer Grant goes to organizations, non-profits, and community groups who then themselves serve and support veterans in the agricultural business. It’s not a consumer-facing program. So, while you may somehow benefit from it through the efforts of others, it’s not something you can go out and apply for specifically.
Veteran SBA Loan Requirements
If SBA loans or fee waivers for veterans are funded again, it’s helpful to understand how you would document that status. In the past, the SBA has required the following documentation:
- Veterans need a copy of form DD214 to prove you were a military member that wasn’t dishonorably discharged.
- If you’re a service-disabled veteran-owned company, this same form (along with documentation from the Department of Veteran’s Affairs) will show you have a service-related injury or illness.
- Reservists or National Guard members can provide DD Form 2, or their identification card.
- Spouses of any of the above just need to show their status as a spouse (usually through a marriage license) and the qualifying DD 214 or DD 2.
If you are a transitioning active-duty military member or spouse of one, there are several ID cards available that states this. Members and spouses are encouraged to bring their cards with them when making an application. If you’re not comfortable with providing your ID, for security reasons, contact your personnel office for a statement of service that includes all of your identifying information, including your name, Social Security Number, and the effective date of active or reserve guard duty – as well as how long your service lasted.
In addition to being properly documented, applicants for SBA veteran loans must be taken out by a 51% veteran-owned business. You can have partnerships with other owners, but the veteran (or multiple veterans), service-disabled veterans, active duty military member participating in the Transition Assistance Program (TAP), reservist, national guard member, or spouse or widow of the member must own the majority of the company.
Related SBA Resources
- COVID-19 Resources and Guidance By State
- Frequently Asked Questions About CARES Act Paycheck Protection Loans for Small Business
- Frequently Asked Questions About Applying for SBA Disaster Loans Due to Coronavirus
- Prepare Your Application for the SBA Paycheck Protection Program
- Applied for an SBA Disaster Loan? You Need to Monitor Your Credit ASAP
- Applying for a Business Loan Is Changing Due to COVID-19: Here’s What It Means
This article was originally written on August 6, 2019 and updated on November 12, 2020.