As a veteran aiming to start or grow your business, you may be curious about your funding alternatives. VA business loans present an excellent opportunity explicitly tailored for those who have served in the military.
Whether you’re aspiring to start a new enterprise or need capital to enhance your current one, grasping the details of these loans can significantly aid your entrepreneurial success.
What is a VA business loan?
So, what exactly is a VA loan? The term “VA loan” typically refers to a mortgage loan backed by the U.S. Department of Veterans Affairs, meant to help veterans, service members, and certain eligible surviving spouses purchase homes.
However, regarding business funding, VA loans can refer to the various financing options for veteran-owned small businesses. These VA business loans are advantageous because they often come with lower interest rates and favorable terms than traditional financing.
What types of business loans are available for veterans?
Veterans can access a range of loans for business ownership tailored to their unique circumstances. There are many options, from SBA loans to traditional bank loans. These targeted funding programs are critical for veterans who often face unique challenges when entering the entrepreneurial world, such as credit concerns or lack of collateral.
Finding the best startup business loans requires understanding your options. Popular choices include SBA 7(a), SBA Express, and SBA microloans. Each has its own set of benefits, eligibility criteria, and application processes, making it essential for veterans to assess their needs carefully.
Veteran small business loan options
Let’s explore the loan types available to veterans. Many organizations, including the Small Business Administration (SBA), provide loans specifically for veterans. Additionally, state and local programs offer specialized financial aid to veterans.
Getting verified as a veteran-owned business can open up opportunities for contracts and grants exclusively available to you.
SBA 7(a) Loans
The SBA 7(a) loan is one of the most popular. This versatile loan program offers features like loan amounts up to $5 million and terms that can stretch up to 25 years for real estate. It’s known for its flexibility in using the funds, from purchasing equipment to working capital. The SBA guarantees a significant portion of these loans, making lenders more willing to work with small businesses.
SBA Express Loans
If you need fast access to cash, SBA Express Loans are highly favored by veterans. 73% of all SBA loans issued to veterans are $350,000 or less. With a maximum loan amount of $500,000, these loans can be approved in as little as 36 hours. This is an excellent option for veterans needing a shorter loan process for quick funding, but it still offers the security of SBA backing.
Notably, the SBA will waive the upfront guarantee fees for businesses owned and controlled (at least 51%) by a veteran, an active service member, or a qualifying spouse. The SBA typically charges guarantee fees to help cover the administrative costs of processing loans. These must usually be paid within 90 days of loan approval, after which borrowers can use the loan proceeds.
While this program isn’t exclusively for veterans, special benefits are available for those who qualify for funding.
SBA Microloan
The SBA Microloan program may be suitable for those looking for smaller sums. Typically providing funds up to $50,000, these loans are intended for startups or small businesses. They often come with lower interest rates and are a perfect stepping stone for those new to the business world.
Military Reservist Economic Injury Disaster Loan (MREIDL)
The Military Reservist Economic Injury Disaster Loan (MREIDL) is a program offered by the SBA that is designed to provide financial assistance if you have an essential employee who is a military reservist activated for active duty.
Membership eligibility includes veterans and active duty members of the Army, Marine Corps, Navy, Air Force, Coast Guard, National Guard, Space Force, and other related categories.
Additionally, Service Credit Union specifically serves veterans, active duty military personnel, and Department of Defense employees.
Traditional Lenders and Credit Unions
When you apply for a loan, traditional lenders may approach your application with a mix of understanding and caution, recognizing the unique challenges you face as a veteran. While your credit score and financial history will be assessed like any other borrower, many lenders consider service-related issues that might affect your credit.
You may also find specialized loan programs from banks and credit unions that offer more favorable terms, such as lower interest rates and flexible repayment terms and schedules.
Additionally, if you present a solid business plan, some lenders might be more willing to work with you even if you have limited collateral. Traditional lenders often provide a more compassionate evaluation process by acknowledging veterans’ transitional challenges when returning to civilian life.
Online Business Loans
In the digital age, online business loans have become increasingly popular. Veterans can access funding options from online lenders with just a few clicks.
While the process is convenient and often faster than traditional banks, be cautious of high interest rates and fees. Always read the fine print before diving in.
Here’s a comparison of seven different business loan types.
| Loan Type | Benefits | Eligibility Criteria | Application Process |
|---|---|---|---|
| SBA 7(a) Loans | Flexible use of funds, longer repayment terms, lower interest rates | Must be a small business, for-profit, meet SBA size standards | Apply through an SBA-approved lender with required documentation |
| SBA Express Loans | Faster processing times, access to up to $500,000, simplified application | Must qualify as a small business, be in business for at least one year | Submit application to a lender approved for SBA Express loans |
| SBA Microloan | Access to smaller loan amounts (up to $50,000), mentoring support | Must be a small business and meet SBA size standards | Apply through an SBA-approved intermediary lender |
| Military Reservist Economic Injury Disaster Loan (MREIDL) | Financial assistance for businesses with reservist employees called to active duty | Must employ a reservist called to active duty | Apply directly through the SBA with necessary documentation |
| Traditional Lenders | Potential for larger loan amounts, established lending protocols | Varies by lender but generally requires good credit and business viability | Submit application with required information to the lender |
| Credit Unions | Lower interest rates, member-focused service | Must be a member, may have specific requirements based on the credit union | Apply through your local credit union with documentation |
| Online Business Loans | Quick access to funds, often less stringent requirements (be cautious of high interest rates and fees) | Varies by lender; generally, a good business plan and minimal credit history required | Complete an online application with required information, often with rapid approval times |
Key Takeaway:
VA business loans offer veterans access to various financing options with lower interest rates and favorable terms than traditional loans. Types of loans include SBA 7(a), SBA Express, and SBA microloans, designed to address challenges like credit concerns and limited collateral. Understanding these tailored programs is essential for veterans to navigate funding opportunities and achieve their business goals successfully.
Who is eligible to receive a VA business loan?
Eligibility for VA loans isn’t just a free pass for any veteran. Generally, it would be best to have an honorable discharge from active duty service. Additionally, active duty and some National Guard and Reserve members may qualify. It’s essential to check that you meet the specific requirements of the loan you’re interested in.
What credit score is needed for a VA business loan?
The required credit score can vary significantly depending on the lender and the specific type of loan you’re pursuing. While the VA does not impose a set minimum credit score requirement, most lenders typically look for a score of at least 620 to 640.
If you’re considering loans backed by the Small Business Administration (SBA), the expectations might be even higher, often requiring credit scores of 640 or above. It’s essential to remember that lenders consider more than just your credit score. They will also evaluate your business experience, income, and overall financial stability, so a strong business plan can help offset a lower credit score.
If you have bad credit and your credit score falls below these thresholds, don’t be discouraged; options such as grants for veterans or alternative financing methods like crowdfunding might still be available to support your entrepreneurial journey.
Key Takeaway:
To qualify for a VA business loan, you typically need an honorable discharge, with some active duty and National Guard members also eligible. Most lenders look for a credit score of at least 620 to 640, but they also consider your business experience and financial stability; a strong business plan can help compensate for a lower score.
If your credit isn’t ideal, don’t worry—grants and alternative financing options like crowdfunding may still be available to support your business goals.
How do you apply for a VA business loan?
Applying for a VA small business loan is much like applying for any other loan type. You’ll need to prepare your business information, personal financial details, and relevant documentation to prove your business’s legitimacy. Gather your business plan, financial projections, and credit history.
- Choose the right loan type: Decide which VA loan fits your needs best.
- Gather documentation: Collect the necessary paperwork to demonstrate your business’s viability.
- Submit your application: Fill out the application online or in person, depending on the lender.
- Follow up: Stay in touch with your lender to answer any questions they may have during the review.
How can you use the funds from a VA business loan?
Once you secure a VA small business loan, the question becomes — how can you use these funds?
The money can generally be utilized for many purposes: purchasing equipment, acquiring inventory, covering operational expenses, paying essential employees, or even marketing your business. However, always check for any restrictions specific to your loan agreement.
Key Takeaway:
To apply for a VA business loan, prepare your business information, financial details, and documentation like your business plan and credit history. Choose the right loan type, gather the necessary paperwork, and submit your application while keeping in touch with your lender during the review.
Once approved, you can use the funds for various purposes, such as purchasing equipment and covering operational expenses, but check for any restrictions in your loan agreement.
Will the VA help me start a business?
The U.S. Department of Veterans Affairs (VA) and various organizations offer resources tailored specifically for veterans who want to launch or grow their enterprises.
Here’s an overview of how the VA can support you and where to find the needed information.
VA Business Resources
The VA’s Office of Small & Disadvantaged Business Utilization provides extensive information on programs and services designed for veteran business owners. You can explore various resources, including business loans for veterans, grants, and technical assistance, that can significantly ease the burden of starting a new venture. One key resource is the Veteran Entrepreneur Portal, which offers guidance on navigating the challenges of entrepreneurship.
SBA Resources for Veterans
The Small Business Administration (SBA) is pivotal in assisting veterans through multiple initiatives. They offer resources such as the Boots to Business training program, which guides veterans in starting and managing a business. This program provides valuable insights into creating business plans, understanding financing options, and navigating the marketplace.
For more information, visit the SBA’s Office of Veterans Business Development.
Grants
While the VA does not directly provide veteran business loans, it supports various loan VA business grants, which could be a game-changer for you when exploring financing options. Unlike loans, these grants don’t need to be paid back, allowing you to pursue your business goals without the burden of debt. Various organizations, including the U.S. Small Business Administration and private foundations, offer grants tailored to veteran-owned businesses, allowing you to access vital resources to help your venture thrive.
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Keep up with grants available to small business owners in Southern California.
Networking and Support Organizations
In addition to financial resources, numerous organizations are dedicated to supporting veteran entrepreneurs. Veterans Business Outreach Centers (VBOC), funded by the SBA, offer essential services such as business training, counseling, and mentoring to help veterans achieve their business goals.
Check out the SBA’s VBOC page to find a center near you and take advantage of their support for veterans.
Local Assistance
Don’t overlook the resources right in your community! Many local chambers of commerce and business development centers have programs designed specifically for veteran-owned businesses.
These organizations can provide personalized assistance to guide you through their support setting for your business, networking opportunities with other entrepreneurs, and connecting you with potential funding sources.
If you live in the Inland Southern California area and need help, connect with one of our small business growth experts by filling out the simple form on the Small Business Assistance Tool.
