Small Business Administration Loans for Veterans

Coming to the end of a military career, whether through retirement or separation, means you need to plan for what’s next. While many transition into civilian jobs, a significant number of veterans opt to start, build and grow their own businesses. Veterans own more than 2.5 million small businesses in the United States and employ nearly 6  million people, according to the U.S. Small Business Administration.

And veterans need not rely on their savings or traditional bank loans to get their businesses off the ground. There are loan and funding opportunities specifically designed to help veterans launch their dreams of small business ownership, and there is also financial support for expansion and more when the time is right.

While the U.S. Department of Veterans Affairs does not offer or guarantee business loans, the Small Business Administration has veteran-tailored loan programs that can link you with funding, training and even federal contracting opportunities. The SBA is fully dedicated to small businesses, offering counseling and connections to loans, investment capital, disaster assistance, surety bonds, grants and more.

Office of Veterans Business Development (OVBD) and SBA Loans

Getting started on your path to your own business should probably begin at the SBA’s Office of Veterans Business Development. The OVBD is devoted to promoting veteran entrepreneurship and facilitates all of the SBA’s programs for veterans, service-disabled vets, reservists, active-duty personnel, those transitioning out of the military, as well as dependents and survivors. OVBD programs can give you access to capital, help prepare you for running your small business, and even link your business to federal procurement and commercial supply chains.

Beyond access to loans, the SBA offers support programs to veterans designed to help you achieve success in business. With locations throughout the country, the Veterans Business Outreach Center is a small business program run by the OVBD that offers business-plan workshops, concept assessments, mentorship, and training to eligible veterans.

What Are SBA Veteran Loans?

In order to launch a business, an entrepreneur obviously needs to money to fund the operation. The Small Business Administration partners with lenders to increase access to loans for small business owners and has tools for veteran-owned small businesses like Lender Match that connect veterans to lenders. The SBA also has its own loan programs to help small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easier for small businesses, including those owned by veterans, to find and get needed funding.

While many programs designed to help veterans pursue and find success are administered by the Department of Veterans Affairs (GI Bill, guaranteed mortgages, etc.), the VA does not provide or guarantee business loans. In fact, references to “VA small-business loans” actually refers to the SBA’s Veteran Advantage program or other SBA funding programs targeting  veteran-owned businesses.

Qualifications for VA Small-Business Loans

There are several criteria that must be met in order to qualify for a VA small-business loan, also known as an SBA veteran loan. First, the business must be majority-owned – a stake of 51% — by a veteran or their spouse. So, in addition to meeting general loan qualifications such as a qualifying credit score, the Veterans Advantage program requires majority ownership by someone who meets one of the following categories:

• An active-duty military service member participating in the Department of Defense’s Transition Assistance Program
• An honorably discharged veteran
• A service-disabled veteran
• A reservist or active member of the National Guard
• The current spouse of a veteran, active-duty service member, reservist or Guard member
• A widowed spouse of a service member who perished while in service or from a service-related disability

How to Apply for SBA VA Loans

Like the process for receiving nearly any VA loan, securing financing through the SBA starts by submitting an application and several other documents related to your veterans status and time in service. You also have to submit a business plan, financial statements, tax information, answer questions about business ownership, and other relevant information about licenses and certification. Veterans, and sometimes family members, will also need to provide documentation specific to service history:

• Veterans: a copy of form DD214
• Service-disabled veterans: a copy of form DD214 or documentation confirming a service-related disability
• Transitioning active-duty personnel: a DD2 form, Armed Forces ID card (active) or DD 2form, Armed Forces Geneva Conventions ID card (active) and form DD2648 (active-duty military) or form DD2648-1 (reservist)
• Reservists and members of National Guard: DD2 form, Armed Forces ID card (reserve).
• Current spouse of a veteran: the veteran’s DD214 form and evidence of the current marriage.
• Current spouse of a transitioning active member of current reservist/member of National Guard: a DD1173 form, a Department of Defense Guard Reserve Family Member ID card and evidence of the current marriage.
• Widows of service members who died in the line of duty or from service-related injuries: Provide documentation from the Department of Defense or Veterans Affairs that proves the case.

Note that if a DD214 form is not available, NA Form 13038 can be submitted instead.

SBA Veteran Loan Types

Veterans have a range of choices for business loans, whether they choose to borrow from commercial lenders, nonprofit organizations or through the SBA.

• SBA Express loans: This program allows veterans to borrow up to $500,000. Additionally, upfront guarantee fees of 2 to 3% of the loan are waived for veterans, reservists, members of the National Guard and qualifying spouses. These loans typically have a quicker turnaround time than other SBA loan offerings, usually 36 hours as compared to several weeks or even months. However, underwriting criteria can be strict and borrowers will need a minimum FICO score of 650, strong annual revenue, and at least two years in business to qualify.
• SBA 7(a) loans: Issued by banks, credit unions and online lenders and partially guaranteed by the SBA, the SBA 7(a) loan program is considered a great option for established businesses seeking long-term financing. Additionally, SBA 7(a) offers higher loan amounts than the Express program — up to $5 million. This program is not specifically tailored to veterans and also requires strong credit and business financials.
• Bank-issued loans: Loans issued from a bank usually offer the lowest interest rates but can be tough to qualify for. Typically, you will need a credit score in the 700s, strong revenue, and several years in business. Some banks offer loan programs that cater to veterans, while others offer discounts or lower fees for qualifying veteran-owned businesses.
• Online loans: For newly launched businesses or for owners with a lower credit score (690 or below), online lenders may offer a lifeline to funding, lines of credit and more. Typically, these lenders have more flexible qualifications, but you will also pay higher interest rates.
• Microloans: Nonprofit organizations sometimes offer funding options for traditionally underserved businesses. Called microlenders, these institutions offer fast working capital loans and financing options of up to $50,000 to new businesses and even those with lower credit scores.

Best Small-Business Loans for Veterans

The best loan for your business will offer the lowest rates based on your qualifications and the most ideal terms. Unfortunately for new business owners, lenders prefer doing business with established companies that can demonstrate strong cash flow. This preference often disqualifies startup business with less than a year of operating history and little to show in terms of revenue. Thankfully, veterans and other small-business owners do have a couple options to secure financing:

• SBA microloan program: Funded by the SBA and targeted primarily to startups and early-stage businesses, this small-scale loan tops out at $50,000 with interest rates ranging from 6% to 9%. Loan terms can extend to seven years and fees go up to 3% of the loan amount (up to 2% for loans with terms of less than one year), plus closing costs determined by the lender. Lenders will typically require collateral against nonpayment and you will have to sign a personal guarantee stating your intention to repay the loan. Eligibility requirements will vary by lender, with some requiring a minimum credit score.
• SBA Community Advantage loan: Housed under the larger 7(a) program, the Community Advantage loan was designed to serve newer businesses, businesses operating in traditionally “risky” industries, and those owned by women, minorities and veterans. While most SBA 7(a) loans are issued by traditional lenders like national, regional and local banks, Community Advantage lenders could be certified development companies, microloan programs, and other organizations. You can borrow up to $350,000 with the SBA guaranteeing as much as 85% of the loan. Interest rates range from 6.5% to 9%, with repayment terms capped at 10 years for equipment and working capital and 25 years for real estate. Credit scores can be as low as 140 and the program is considered friendly to startups.

Alternative Resources for Veteran-Owned Businesses

If securing a loan isn’t the best option for your veteran-owned business, there are alternative funding options. If you have a high score on your personal credit report, you could qualify for a business credit card or a personal business loan. Both are unsecured, meaning you won’t be required to provide collateral such as real estate or inventory in order to qualify.

• Business credit cards typically offer as much as $50,000 in revolving credit, allowing you to borrow from the credit card as needed and pay interest only on the withdrawn funds.
• Personal loans for business can give you access to a lump sum of cash, complete with a fixed interest rate and repayment terms.

If you’re looking for other options, there are financial resources, grant programs, business training and other assistance for veteran-owned businesses through government and nonprofit organizations:

• Veterans Business Outreach Centers: These centers provide workshops, training, counseling and more to assist veterans in starting and growing businesses. VBOCs are located across the country and can connect you with SBA partners, including community lenders and more.
• Military Reservist Economic Injury Disaster Loan Program: The MREIDL offers up to $2 million if you have an essential employee who is a military reservist and called to serve on active duty. This program covers regular business operating costs, not costs associated with starting or expanding a business.
• SBA 8(a) program: Another program provided by the SBA, the 8(a) is a development program for eligible businesses that can include veteran-owned enterprises. The SBA 8(a) offers small businesses a certification to improve their odds of winning government contracts as well as help with navigating the bidding process.
• Second Service Foundation: Formerly the StreetShares Foundation, the Second Service Foundation is a nonprofit with the aim of assisting veteran business owners. The Second Service Foundation offers an annual grant program, known as the Military Entrepreneur Challenge. SSF also offers networking events, coaching, training, and more.
• Small business grants: Veterans qualify for a number of grants offered by government agencies, nonprofits and private companies. Search on Grants.gov to find active government grants for businesses, or visit GrantWatch.com to filter grants available specifically to veterans.