What Types of Small Business Loans Exist for Veterans

by | Aug 11, 2020 | Business Financing, Small Business Funding | 0 comments

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A great many veterans, once they leave the service, are eager to use their specialized skills and leadership abilities to begin the life of an entrepreneur. Veterans are in a unique circumstance, and they receive many benefits from the government for both schooling and getting a business off the ground.  Understanding what Small Business Loans for Veterans are available and how to get them can be confusing.

The country values its veterans and sees their training and expertise as an investment that they’ve made into the future of the United States, and therefore seeks to make the most of that expertise by greasing the wheels of their post-service career.

On top of that, the government has made special provisions for military reservists who are currently running a business but are called into active duty and have to leave their company to fight for their country; the government doesn’t want to hang these men and women out to dry, and they have made provisions to ensure that they will be well taken care of while they’re gone.

Some of the most used small business loans available to veterans are:

SBA 7(a) Loans

The SBA 7(a) loan is perhaps the most common small business loan used by veterans and non-veterans alike. This loan for small business owners, provides as much as $5 million to finance a business in many different ways. One of the most attractive aspects of an SBA 7(a) loan is that they have great terms–they often have very long repayment terms (as much as 25 years for some types of loans, such as real estate)–and relatively low interest rates.

But while the SBA 7(a) loan is available to anyone starting a small business, veterans have a leg up through the Veterans Advantage program. In this program, the Small Business Administration waives the upfront guarantee fee for loans under $125,000, and they lower the fee by 50% for loans between $125,000 and $350,000.

In addition, the Small Business Administration also gives counseling services and training to borrowers, especially in regard to the transition from military to civilian life.

In order to qualify for the Veterans Advantage program (for both the SBA 7(a) Loan and the SBA Express Loan, mentioned below) the business must be at least 51% owned and controlled by an individual or individuals in one of the following groups:

  • Veterans (other than dishonorably discharged)
  • Service-Disabled Veterans
  • Active Duty Military service members in the military’s Transition Assistance Program (TAP)
  • Reservists or National Guard Members

Current spouse of any Veteran, Active Duty service member, Reservist, or National Guard member, or a widowed spouse of a service member who died while in service or of a service-connected disability.

SBA Express Loans

The SBA Express Loan, available for anyone starting a business, also has a benefit especially suited for veterans. The main selling point of the SBA Express Loan is that it is, as the name suggests, easier and faster to get than the SBA 7(a) loan, which often takes many months and a lot of hassle. The SBA Express Loan has a much faster turnaround time, and offers loans up to $350,000.

Of all loans that go to veterans, 73% are for less than $350,. Nearly 60% of all SBA loans go through the Express Loan program.

The benefit to veterans is that the Veterans Advantage plan again waives the upfront guarantee fee for this loan, for those who qualify (normally this fee is 2-3% of the amount of the loan). This Veterans Advantage plan is available to veterans, reservists, national guard members, and spouses. They are all eligible to have the fee waived.

As of the latest available figures, the SBA supported $1.86 billion in loans for 3,094 veteran-owned businesses. This has doubled since 2009.

Veteran’s Business Fund

The Veterans Business Fund is a relatively new fund, which is a non-profit 501(c)(3) which uses donor money to offer veterans funding on good terms. These loans are especially directed at veterans who want to start or expand an existing business, or purchase a franchise business.

Because of the non-profit nature of the loan, this can be a non-interest-bearing loan, to the extent of the law. The loan terms are typically for five years or more.

A veteran who chooses Veterans Business Fund will have to supply some of the money on their own–the program only gives loans in conjunction with the veterans personal equity–generally 50% of the funds.

Military Reservist Economic Injury Disaster Loans

The Military Reservist Economic Injury Disaster Loan (MREIDL) is run by the Small Business Administration, and unlike other SBA loans which are loaned through banks and direct lenders, these funds come directly from the SBA through the MREIDL program.

The loans are for the amounts of up to $2 million and are given to businesses that cannot meet their obligations due to the owner or other essential employee being called up as a reservist into active duty. The loan is designed to help keep the business afloat until the reservist returns from duty and is able to regain control over their business.

These loans are typically on very good terms (with interest rates around 4%) and can really help out a business that is struggling financially as a result of active-duty status.

The loan is available when the owner or key employee is called into active duty, and lasts until one year after their release. The repayment terms can be as long as 30 years. This loan, however, is a secured loan that requires collateral of $50,000.