Resources for Veteran Entrepreneurs

Empowering Veterans: A Guide to Navigating Business Financing and Support

The acquisition of a business loan can present a complex journey filled with critical decisions and potential obstacles. However, the U.S. Small Business Administration (SBA) extends vital support and "special considerations" to U.S. military veterans. This assistance is executed through collaborations with numerous financial institutions across the nation, where the SBA and affiliated organizations assist veterans in securing the necessary capital to initiate a small business.

Prior to seeking financial support, it is essential for applicants to familiarize themselves with the diverse lending options available to veterans, including their qualification criteria.

Understanding VA Small Business Loans

For veterans aspiring to venture into entrepreneurship, securing business financing is a crucial step. While traditional lending avenues are an option, veteran status provides eligibility for specialized business financing through the SBA, known as VA small business loans.

Contrary to its designation, VA small business loans are not managed by the Department of Veterans Affairs but by the SBA's Office of Veterans Business Development. This program caters to a broad audience including "veterans, service-disabled veterans, reservists, active-duty service members, transitioning service members, and their dependents or survivors," facilitating approximately $984 million in loans to over 2,600 veterans in fiscal year 2019.

VA small business loans, similar to conventional loans, necessitate repayment with interest. The distinction lies in the SBA's partnership with lenders to formulate guidelines that mitigate their risk, often resulting in more favorable interest rates and repayment terms for the borrower, depending on the specific loan type and financial circumstances.

Available VA Small Business Loan Options

Veteran entrepreneurs have multiple loan options through the SBA's lending programs, designed to accommodate a variety of business needs.

Although the SBA once offered veteran-specific lending programs like the Patriot Express loan, current offerings do not include loans with reduced rates specifically for veterans. However, veterans can still access the following common SBA loan types suitable for various entrepreneurial endeavors.

Standard 7(a) Loans

The cornerstone of the SBA's lending efforts, the 7(a) program, supports a wide array of small business requirements. This program is particularly beneficial for more established businesses, offering loans up to $5 million for purposes such as working capital and real estate purchases. SBA-backed loans typically feature lower interest rates and extended repayment periods, with the SBA guaranteeing a significant portion of the loan amount.

Military Reservist Economic Injury Disaster Loan (MREIDL)

This program aids small business owners called to active duty, providing financial support to mitigate the impact of the absence of a key employee or the owner. Loans of up to $2 million are available at a fixed interest rate, with terms up to 30 years, depending on collateral availability.

Microloans

For businesses that may not qualify for traditional loans, the SBA's microloan program offers up to $50,000 to support small business growth. Despite the smaller loan sizes, these loans may carry higher interest rates and require comprehensive documentation, including a business plan and financial forecasts.

Qualifying for a VA Business Loan

Eligibility for VA business loans varies by loan type, applicant's credit history, and other criteria. Generally, the SBA's eligibility for the 7(a) loan program includes operating for profit within the U.S. or its territories, investment of equity by the owner, and the exhaustion of alternative financial resources.

National and Regional Resources

Veteran business owners also have access to a plethora of national and regional resources designed to support their entrepreneurial journey, from the National Veteran-Owned Business Association to Veterans Business Outreach Centers and American Corporate Partners.

The Most Common Question

Is it Possible to Secure a VA Loan with Poor Credit?

• Obtaining a VA loan with a lower credit score is feasible, though exploring alternative financing routes might be necessary.
• For a conventional VA business loan, most banks prefer a credit score of 680 or above.
• Online lenders often have more flexible credit requirements, typically looking for scores of 600 or more.
• Approval for applicants with credit scores below these thresholds can occur, particularly for businesses operational for one year or longer.

How can I use the funds?

• VA loan funds must be directed towards business-related expenditures.
• Lenders may impose specific conditions on how the funds are used, such as: Allocation for purchasing equipment or covering building leases.
• Restrictions against using the funds for personal needs or payroll.

Starting a Business as a Veteran: Pros and Cons

Advantages:

• Specialized financing options are readily available.
• Relaxed lending criteria from financial institutions.
• Exclusive loan programs designed for veterans.
• Access to organizations offering support and resources at minimal or no cost.

Disadvantages:

• Possible inexperience in commercial business practices due to prolonged military service.
• Significant time and commitment required to achieve profitability in a new business venture.