As a United States veteran, you might be interested in starting your own business but need money to make it a reality. Whether you need initial capital for your startup or additional funds as you expand, a VA small business loan could be the answer.
Keep reading to learn if you qualify for specific loan programs and what small business loan options are available to you after you've served.
How Do Small Business Loans Work?
The U.S. Small Business Administration (SBA) has a portion of its website committed to veteran-owned businesses — and for a good reason. U.S. veteran-owned small businesses employ more than 5 million people.
Eligibility for a VA business loan requires that the majority of the company be owned by one of the following individuals:
- Service-disabled veterans
- Honorably discharged veterans
- Active National Guard members
- Active Reservists
- Current spouses of the above
- Spouses of veterans who died while in service
VA small business loans are partially guaranteed through the SBA. This means that the loans are made by another financial institution, which can be a bank or credit union. The partial loan guarantee means that the SBA will reimburse the financial institution only partially if the veteran borrower defaults.
Before you start your application process, it's important to develop a business plan. Many lenders require business plans so that they can see how you plan to use their funds. By showing the lender how you plan to build your business, you are also showing how you plan to pay them back.
Once you've created a business plan, it's time to start the VA business loan application. The exact application process will vary depending on whichever loan options you select. Luckily, SBA counselors are available to help you through the application process.
Since the SBA is not the lender, they will help you find reputable lenders and approved loan providers. To complete the application, you will need to include some important information to confirm eligibility:
- Business plan
- Personal contact information
- Income verification
- Discharge paperwork
Additional Veteran-Owned Business Benefits
Aside from being eligible for veteran business loans, there are other veteran advantages. If you register as a veteran-owned small business, you can qualify for access to money, tax relief, priority on state and federal government contracts, and additional support.
Veterans are also eligible for additional benefits when they have their own business. Often, these include business mentoring programs that can be completed on military bases or online. Some training programs teach veteran entrepreneurs how to run a successful business, while others instruct business owners on how to bid on government contracts.
Additional assistance includes:
- Office of Veterans Business Development (OVBD): This office offers workshops, mentorship, and entrepreneurial training.
- Women Veteran Entrepreneurship Training Program (WVETP): This training program was designed to help new and up-and-coming women-owned small businesses.
- Boots to Business: The Boots to Business program provides additional training and resources to veterans, whether they are located domestically or internationally.
- Service-Disabled Entrepreneurship Development Training Program (SDVETP): This is a grant for service-disabled veteran business owners to receive additional training.
- Transition Assistance Program: This program was developed for transitioning honorably and medically discharged veterans, active-duty members, and their spouses.
For What Can You Use a Small Business Loan?
Depending on the type of small business loan you receive, the proceeds may cover different things.
- SBA microloans can cover almost everything, except for consolidating debt or purchasing real estate.
- SBA 504 loans can be used to fix or modernize business assets.
- SBA 7(a) loans can be used for anything business-related: buying new inventory, hiring business management, startup costs, real estate, etc.
- The Military Reservist Economic Injury Disaster Loan (MREIDL) can only be used to cover working capital needs if an essential employee is deployed. These funds can only be used when the essential employee is away and stops once they return from deployment.
Small Business Loans for U.S. Veterans
As you can see, the qualifications for SBA loans vary greatly. In this next section, we'll cover SBA loan programs you may be eligible for and who they were designed to help.
It should be noted that the SBA doesn't lend money. Instead, the SBA guarantees business loans for eligible individuals. As a U.S. veteran, the SBA is dedicated to helping you get the business loans you need through a special program, Lender Match. Before you apply to SBA loan programs, you can complete the Lender Match form. From there, Lender Match provides you with information about who you should be put in touch with before you apply.
SBA 7(a) Loan Program
This loan program is the U.S. Small Business Administration's main program to provide loan assistance to small businesses. The benefit of the SBA 7(a) loan is that there aren't any loan fees for the borrower; however, you may have to pay a fee for the loan guarantee. Plus, loan terms can be up to 10 years for basic loans or up to 25 years for real estate loans.
An important consideration, though, is that the SBA 7(a) loan program was not designed for startup businesses. In fact, you must be in business for at least two years to qualify for the loan. Additionally, to meet all of the eligibility requirements, you must have great cash flow and a good credit score.
All in all, the 7(a) loan program is a great option for veteran small business owners. It has low interest rates, long terms, and low monthly payments. Moreover, standard 7 (a) loans can be used for working capital, purchasing commercial real estate, and consolidating debt.
To apply for an SBA 7(a) loan, you will need to follow these steps:
- Complete the SBA Loan application form
- Provide information regarding your military background
- Provide financial documents, which include:
- Profit and loss statement
- Projected financial statements
- Income tax returns
- Loan application history
- Include the names of business owners, their addresses, and resumes
- Provide your original business license or certificate of doing business
- Include a copy of your business lease
Eligibility for express loans is not all that different from the SBA 7(a) loan program, but the application process is different. In fact, there are no application or upfront guarantee fees for express loans. Express loans have two-day express processing and have an SBA guarantee of 50%.
Although it takes more than 36 hours to receive the loan money, knowing that the loan has been approved can be a huge weight off your shoulders. The SBA Express Loan does not require veterans to pay origination fees. However, they often have higher interest rates than SBA 7(a) loans and are capped at $350,000.
To complete your application for an Express Loan, you will need to provide signed copies of:
- Borrower information
- Statement of personal history
- Agreement of compliance (for loans over $10,000)
- Compensation agreement
- Fee disclosure forms
- Tax transcripts request form
SBA microloans have a maximum loan amount of $50,000. This type of loan program was developed for small business owners without access to other financing options. In most cases, qualifying individuals must provide collateral.
Unlike other small business loan options, though, SBA microloans require a significant amount of paperwork. This may include:
- Articles of incorporation
- Business plan
- Business licenses and permits
- Resumes of all business owners
- Personal credit report
- Personal financial statements
- Personal tax returns
- Business tax returns
- Balance sheets and profit-loss statements
Although eligibility requirements are more lengthy than other loans, this is still a good option for many. Plus, having all of this documentation readily available is already a smart business practice.
SBA 504 Loan Program
The SBA 504 Loan Program provides long-term loans with fixed interest rates. This loan enables individuals to buy fixed assets, which are long-term pieces of property or equipment, and update small businesses.
These loans are made through the SBA's Certified Development Companies (CDC). This is a nonprofit organization dedicated to encouraging economic development.
To apply for the SBA 504 Loan Program, you will need to work with your CDC or lender. Here's an overview of the process:
- Complete the pre-qualification, which covers your creditworthiness, program eligibility, and the current level of indebtedness of your business.
- Then, find a lender. The CDC can help you find a lender. During this step, you will need to provide the following documentation:
- Loan total
- How you will use the funds
- Financial projections for the next one to three years
- Current P&L statement
- Copies of business license and lease
- Current balance sheet
- Two years of business and personal tax returns
- Personal financial statement
- Business plan
- Forms to prove business ownership
- Next, submit your application.
- Once the application has been submitted, you will receive the Letter of Intent.
- Work with your lender and the CDC for the loan to go through underwriting, which can be a lengthy process.
- Once the underwriting process is complete, you are ready to sign the final documents.
Military Reservist Economic Injury Disaster Loan (MREIDL)
The Military Reservist Economic Injury Disaster Loan Program was designed for active-duty members. The loan provides working capital to veteran-owned businesses when the principal owner has been called to serve. The MREIDL covers expenses until the essential employee returns from duty.
To apply for the MREIDL program, you must meet the credit requirements. Additionally, you will have to provide collateral for all MREIDLs more than $50,000. Although the SBA requires collateral, you will not necessarily be declined for the loan for lack of collateral. Instead, you will be asked to pledge any collateral that you have available.
Easily Keep Track of Your Small Business Finances With Skynova
Starting and managing your own small business is rewarding but by no means a simple feat. Then, there's the funding part. Compiling the necessary paperwork and documentation can be difficult when all of your financial documents are scattered. That's where Skynova comes in.
Skynova provides small business owners with comprehensive accounting software, giving you remote access to balance sheets, profit-loss statements, and other essential financial documents. Having access to this documentation can make applying and obtaining small business grants or loans easier than digging through years of paperwork.
Notice to the Reader
The content within this article is meant to be used for a general understanding of SBA small business loans for veterans and may not apply to your specific situation. Always consult with an SBA counselor while searching for the right loan.