According to the U.S. Small Business Administration (SBA), over 20 million veterans own businesses. Veterans use their companies to serve customers, create jobs, and generate income. Some veterans need business loans to maintain and grow their companies. Loans can fund necessary equipment, a commercial building, salaries, and other investments. Veterans can tap into traditional financing like everyone else, but they can also capitalize on loans and grants exclusively for veterans. We will share some financing options that can help your business.
Who Qualifies for Business Loans for Veterans?
Active and former members of the armed forces must fulfill at least one of the following parameters to qualify for a business loan for military veterans.
- Service members on active duty in the Transition Assistance Program (TAP)
- Reservists and National Guard members
- Service-disabled veteran
- Honorably discharged
A veteran’s spouse can also qualify for the loan under one of the following conditions:
- The veteran is still alive and currently serving the country
- The veteran died in service or from a disability incurred from service
SBA Loans for Veterans
The Small Business Administration offers various loans for business owners. In addition, they have two programs exclusively designed to finance veteran business owners.
Veterans’ Advantage for SBA 7(a) and SBA Express
The SBA 7(a) and SBA Express loans provide financing for business owners. While anyone can benefit from these programs, the SBA has exclusive advantages for veterans, such as lower loan fees. Veterans can borrow up to $500,000 through an SBA Express loan as a term loan or line of credit. You can receive the funds within 36 hours, but the SBA doesn’t hand these loans to anyone. You’ll need two years of robust revenue numbers and a credit score above 650.
The SBA 7(a) program offers long-term financing and up to $5 million from a single loan. Banks, credit unions, and online lenders provide these loans to veterans with businesses. This loan also requires strong credit and revenue numbers.
SBA 8(a) Service-Disabled Veteran-Owned Small Business
While the SBA 8(a) program won’t give you funding, the program opens up exclusive financing opportunities. This program helps socially and economically disadvantaged individuals get access to government contracts. You won’t have any outside competition for these contracts and can borrow up to $4 million. This limit jumps to $6.5 million for manufacturing companies. You can seek other fund sources as you get certified.
Military Reservist Economic Injury Disaster Loan for Veterans
The military may call one of your employees for active duty. The Uninformed Services Employment and Reemployment Rights Act (USERRA) prevents business owners from discriminating against employees based on past, present, or future military service. The government has rules like these to protect veterans, but they also offer assistance to business owners. If an essential employee temporarily leaves your company to serve, you may qualify for a Military Reservist Economic Injury Disaster Loan. You can obtain up to $2 million from this loan.
Traditional Business Loans Available for Veterans
Veterans can consider many loans and programs specifically for veterans. However, you shouldn’t ignore traditional financing opportunities. More choices can lead to more funding.
VA Business Loans
The U.S. Department of Veterans Affairs offers enticing business loans exclusively for veterans that have lower interest rates and more flexible terms than other types of loans. In addition, these loans do not have any hidden fees or early payment penalties. The VA offers some of these loans directly and also distributes them across approved third-party lenders. VA business loans are one of the best financing options for veterans, but they can take longer for approval. Therefore, you may need a smaller financing option while you wait for your VA business loan request to get approved.
Business Credit Cards
Credit cards help business owners finance new purchases and tap into a flexible credit line. Credit limits vary for each business owner, but some can exceed $50,000. Other financing options give you access to more money, but you can use your credit card anytime you desire. Business credit cards have rewards programs that provide incentives with every purchase.
A business credit card’s rewards program has several perks, but another advantage of these cards is simplifying your taxes. Each of your purchases gets documented and can easily be accessed if you review your monthly credit card statements. You can use these statements to quickly assemble your tax deductions and lower your total bill.
Lines of Credit
Lines of credit function like credit cards. Once you get accepted for a line of credit, you can use it anytime. You won’t have to reapply for another line of credit after paying it back. Lenders only charge interest on lines of credit if you borrow against them. So you can get a line of credit, not touch it for a year, and pay no interest.
All business credit cards give you a built-in line of credit, but you can get a line of credit that’s not connected to your business card for more funding. You can even obtain a line of credit by using an asset as collateral. Using collateral, such as commercial property, will reduce your interest rate, making the debt easier to pay off. A personal or business line of credit will give you additional funds, but it is best to keep your personal and business finances separate.
Invoice Factoring
Some business owners generate enough demand to keep up with costs. However, revenue doesn’t always arrive when you need it. You may have an invoice not due for several months, and the client won’t be in a rush to pay you early. Some businesses in this situation use invoice factoring to raise additional funds.
Invoice factoring helps you realize your invoices sooner. Invoice factoring companies will buy your invoice at less than face value. You would make more money holding onto the invoice and waiting for the deadline, but not every business owner has enough time to wait. You can receive most of the invoice’s face value immediately instead of waiting for the deadline.
Unlike the other strategies on this list, invoice factoring does not put you into debt. You won’t get penalized with higher rates and fees if you have a low credit score since invoice factoring depends on your client’s ability to pay the invoice. You won’t have to worry about another monthly expense reducing your budget and squeezing your profit margin.
Equipment Loans
You need the right equipment to run your company and capitalize on business opportunities. Equipment loans give you the money you need to buy your own equipment so you can escape the cycle of monthly lease payments. Equipment loans may cost more per month than equipment leases, but you can get out of equipment loan payments in a few years and free up your cash flow.
Lenders will request that you use equipment as collateral. Although this increases your risk, it also means lower interest rates. Equipment financing is only a suitable choice if you want to buy equipment. If you need financing for salaries, advertising, or any non-equipment-related purchase, you should consider another type of loan.
Working Capital Loans
Working capital loans are best for short-term expenses. You can use these funds to address immediate needs over a 3-24 month repayment term. Some online lenders provide same-day funding, so you don’t have to wait long for the proceeds to arrive. You can get these loans even if you do not have the best credit, but lenders will expect stable revenue from business owners who apply for the loan.
Most business owners use these loans to address cash flow or seasonal gaps. A business that gets most of its revenue in the summer may use a working capital loan in the winter to stay afloat and buy inventory in anticipation of the peak season. You won’t even have to put up any collateral to obtain this loan.
Merchant Cash Advances
A merchant cash advance can provide financing if your business generates strong sales from credit cardholders. Lenders give you money upfront in exchange for a percentage of future sales. These future sales go towards repaying the loan. Lenders continue collecting this percentage until you finish paying off the loan. Most lenders set 3–18-month terms. Merchant cash advances tend to be more expensive than most financing options. It’s best to explore alternatives before using a merchant cash advance to obtain the capital you need.
Small Business Term Loans
Small business term loans provide significant flexibility. These installment loans provide consistent monthly payments through a fixed interest rate. You don’t have to worry about price fluctuations for your monthly bill. Borrowers can modify the loan’s duration to minimize monthly payments or get out of debt sooner with higher payments. The lender may request a business plan and other information pertaining to your business during the loan application process.
Other Business Grants for Veterans
Loans give your business the financial strength to make new investments and maintain operations. Financial institutions, credit unions, and online lenders offer these financing options. These financial products help, but you can also apply for business grants. While grants are harder to obtain than most loans, you won’t have to pay them back, and nonprofit organizations are happy to give them out. Veterans can explore these grant opportunities.
StreetShares
The StreetShares Foundation runs an annual competition where veterans can pitch their businesses. The foundation selects from 8-15 finalists and invites the public to cast votes. The three entrepreneurs with the highest votes get to pitch to the judges. StreetShares provides the following grants based on how you place:
- 1st place: $15,000
- 2nd place: $6,000
- 3rd place: $4,000
Hivers and Strivers
Hivers and Strivers is an angel fund that awards venture capital to veteran-owned businesses. Veterans run the venture capital firm and make investments ranging from $200,000 to $500,000. The firm will look at a company’s revenue numbers, projections, and other factors before giving money. You’ll need a proven model, but you won’t go into debt to obtain the funds.
Warrior Rising
The Warrior Rising Foundation provides veterans with financing and a support network of mentors and ‘Vetrepreneurs.’ Warrior Rising also helps veterans with the SBA loan process and finding investors.
Office of Veterans Business Development Resources
This office allocates funds and education for veterans and their loved ones. You can learn about growing a business and how to improve your chances of getting a loan. Their page contains many benefits and programs you should explore. You will find opportunities like the Veteran Institute for Procurement Program. Graduates receive exclusive government contracting opportunities.
The Global Good Fund Veterans Leadership Program
This program teaches veterans personalized leadership development skills to strengthen their entrepreneurial careers. You can receive a $10,000 leadership grant.
Service-Disabled Veteran-Owned Small Businesses Program
The government allocates at least 3% of its funds to this program. Veterans must certify their service disability through the Center for Verification and Evaluation. As a result, veteran small business owners in this program can apply for government contracts with significantly limited competition.
