- Current and former military service members have access to special small business loans.
- There are some eligibility requirements for VA small business loans, including an honorable discharge or eligibility for the Transition Assistance Program.
- Spouses and widows of military veterans or active-duty members are also eligible for a VA small business loan and other grants.
- This article is for military veterans who are looking to start small businesses and need help finding the right small business loan.
Although the process of obtaining a business loan can be fraught with numerous decision points and pitfalls, the U.S. Small Business Administration offers support and "special considerations" to U.S. military veterans. Conducted in concert with various financial institutions throughout the country, the SBA and other organizations help people who served in the U.S. armed forces find the funding they need to start a small business.
Before applying for funding, learn about the various lending options for veterans and their qualification requirements.
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What is a VA small business loan?
If you're a former service member looking to become your own boss, it's likely that you'll need some business funding to start. Though you can always attempt to get a small business loan from any traditional lender, your status as a veteran affords you access to special business funding options from the SBA, commonly known as VA small business loans.
Despite what the name implies, VA small business loans have nothing to do with the Department of Veterans Affairs. Handled by the SBA's Office of Veterans Business Development, this loan program offers several options for "veterans, service-disabled veterans, reservists, active-duty service members, transitioning service members, and their dependents or survivors." According to the SBA, approximately $984 million in loans were approved to more than 2,600 veterans in fiscal year 2019.
Like other loans, VA small business loans are provided by a bank or other lending partner and still require regular repayment with interest. The difference between a normal business loan and an SBA-guaranteed loan is that the government agency works directly with lenders to set guidelines that reduce their risk. That lower risk for lenders typically translates to lower interest rates and longer terms for the borrower, though the exact details depend on the type of loan and your unique financial situation.
What types of VA small business loans are available?
Military veterans looking for a small business loan have many options. Thanks to the SBA's various small business lending programs, veterans have access to funds backed by the administration, just as millions of their fellow citizens do.
Though the SBA has offered veteran-specific lending programs over the years, like the Patriot Express loan, those options have expired; the administration no longer offers business loans with reduced rates for veterans. Still, when it comes to small business loans for veterans, the following SBA loan types are the most common and fit many entrepreneurial situations.
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Standard 7(a) loans
Arguably the SBA's bread-and-butter lending effort, the 7(a) SBA loan program covers a wide range of small business needs. With a maximum amount of $5 million, this SBA loan aims more to help established small businesses than to fund burgeoning entrepreneurs, as it's usually used for things like working capital and real estate. Since they're backed by the SBA, these loans generally have lower interest rates and monthly payments over a longer period. The SBA guarantees up to 85% of a loan amount of less than $150,000 and 75% of loans worth more than that amount.
There used to be an SBA 7(a) program tailored to veterans known as the SBA Veterans Advantage program, which waived or reduced fees for loans worth up to $125,000 or provided up to 50% in discounts for loans worth more than $125,000, but the SBA no longer offers such benefits. The last reference of such a program at the SBA was in 2018, with no signs of renewal for the program.
Military Reservist Economic Injury Disaster Loan (MREIDL)
If you were a small business owner when you were called into active duty, you may be entitled to assistance from the Military Reservist Economic Injury Disaster Loan program. This business loan program provides financial assistance in the event that an essential worker or the business owner themselves had to return to active duty. The funding provides additional cash flow until that person comes back from their tour of duty.
Beneficiaries can obtain a loan of up to $2 million with a fixed 4% interest rate and a maximum repayment term of 30 years. The SBA requires collateral for loans over $50,000. Though it "will not decline a loan for lack of collateral," the SBA says it will require you to "pledge collateral that is available."
In addition to its more traditional loan programs, the SBA provides microloans to small businesses that can't typically qualify for other lending options. As the name suggests, microloans offer smaller amounts – up to $50,000. Though the maximum loan amount is tiny compared to other small business loan programs, microloans often have higher interest rates of 8% to 13%. In most cases, a microloan requires some form of collateral and heavy paperwork, including a business plan, various tax returns and financial projections for the business.
Who qualifies for a VA business loan?
Since numerous types of small business loans are available to veterans, the requirements vary by type of loan, the applicant's personal credit score and other factors. In general, however, these are the SBA's eligibility requirements for the 7(a) loan program:
- Your business operates for profit.
- You are engaged in, or propose to do business in, the U.S. or its territories.
- Your business has an owner who has invested equity.
- You have exhausted alternative financial resources, including personal assets, before seeking financial assistance.
For a closer look into which loans might be the best fit for your small business and your eligibility for them, you can use the SBA's free Lender Match tool.
What other business financing options are available for veteran small business owners?
In case none of the aforementioned business loan programs match your needs as a veteran business owner, numerous other programs aim to help the armed forces' service members. Here are three of those programs.
With a focus on veteran-run small businesses, StreetShares helps entrepreneurs locate the best term loan, line of credit or other business financing program to keep things running. As a veteran-run organization itself, this program also offers tips and information on its website.
2. Service-Disabled Veteran-Owned Small Business program
Over the years, thousands of men and women have returned from conflict with various disabilities sustained in battle. To help those individuals return to civilian life and earn a living, the Service-Disabled Veteran-Owned Small Business program works to award at least 3% of all federal contracting spending to such entrepreneurs each year. Through the program, contractors can compete for specially set-aside contracts on an annual basis.
These are the criteria you must meet to qualify for this program:
- You must be a veteran with a disability sustained during service.
- The funding must be for a small business.
- The business must be at least 51% owned and controlled by one or more service-disabled veterans.
- One or more service-disabled veterans must manage the business's daily operations.
3. Hivers & Strivers
Business loans and government contracts aren't the only way to get funding as a veteran entrepreneur. If you're looking for an investor to get your venture off the ground, Hivers & Strivers may be a worthwhile solution. This group was founded by graduates of U.S. military academies, and most of its investors are veterans themselves. It provides support at the early stage of a business's existence, with many investment rounds ranging from $250,000 to $1 million.
National and regional resources for veteran-owned businesses
National and regional resources are available to veterans who plan on opening a business. After establishing the business, the owner can continue using the resources to maintain operations and seek assistance from organizations that provide support to veterans. These are some resources you might want to consider as a veteran business owner:
National Veteran-Owned Business Association
There are numerous nonprofit organizations nationwide that work with veterans who own a business. Research each organization to determine the membership benefits and costs. One example is the National Veteran-Owned Business Association, a national nonprofit that certifies each business is owned and operated by a veteran of the armed forces. The organization can help with networking by hosting events for veteran business owners.
Regional business associations
Similar to national associations, regional business support groups are categorized as nonprofits. The regional associations near your business location can connect you with other local business owners who have veteran status. Regional and national organizations also commonly release publications to alert members of any business news that could impact veterans.
Veterans Business Outreach Centers
Veterans Business Outreach Centers are available through the U.S. Small Business Administration. The centers provide pre-business seminars to help with the planning of a new business. Staff can also help with the creation of a business plan and provide a feasibility assessment of a business concept. Mentorship and entrepreneurial counseling are available onsite.
American Corporate Partners
American Corporate Partners could be another invaluable resource for veterans who are starting or currently own a business. The organization provides mentorship and useful services for those who are trying to transition from the military into private business.
An entrepreneurship bootcamp is an intense program to help veterans launch a business and set themselves up for success right out of the gate. Bootcamps are usually short-term learning seminars that pack a lot of business knowledge into each meeting. Seek out virtual and in-person bootcamps to get started.
VA business loan FAQs
Can you get a VA loan with bad credit?
Yes, you can get a VA loan with bad credit, but may need to look into alternative funding options. Traditional bank loans usually look for a credit score of 680 or higher for a traditional VA business loan. Online vendors have less stringent requirements for a VA loan, but they may still ask for a credit score of 600 or higher. You may be approved with a lower credit score if you've been in business for at least a year, though.
How can you use the funds from a VA business loan?
You can use funds from a VA loan on expenses related to your business. Each lender can put certain stipulations on the VA business loan. For example, it may only allocate you the funds to pay for equipment and a building lease. The lender may not permit the funds to be spent on personal expenses or payroll.
What advantages and disadvantages do veterans have when trying to start a business?
One advantage of being a veteran and owning a business is access to specialized funding. Lenders often have less restrictive loan requirements for veterans. There are also loans exclusively for vets, and veterans can join organizations that provide free or low-cost support to help them start and maintain a business.
The main disadvantage of being a veteran entrepreneur is the potential lack of experience in the business field, especially if you have served for an extended time. Owning a business takes a lot of time and dedication, especially before it turns a profit.