What Are The Best Business Loans For Veterans?
Did you know that veterans are around 50% more likely to set up their own businesses compared to anyone else?
Veterans are a highly motivated part of society and the reasons are clear. They’re typically highly skilled, have great work ethic, and they’re always planning long-term. According to the SBA, around 13% of all companies are owned by veterans, accounting for approximately 2.5 million small businesses.
As such a major part of the small business ownership club, it’s important to learn the special terms and conditions for veterans when it comes to loans. For eligible veteran borrowers, special programs such as the Office of Veterans Business Development (OVBD) are there to support veteran entrepreneurship and give birth to this group’s many success stories.
What Types Of Loans Are Available To Veterans?
There are many loans available to veterans with unique terms and rates. Small business loans are the same for veterans and nonveterans, but there are some major perks. Lenders may waive origination fees or at most require applicants to pay 50% of the standard amount. This is a major benefit for anyone looking to start a business and can save you thousands of dollars.
VA loans are made available from the SBA (Small Business Administration) to veterans or their spouses. To be clear, these are not grants but loans that need to be understood fully to gain the best benefits.
There are three types of business loans for veterans that can be applied for through the VA:
- SBA Express Loan Initiative For Veterans – With this loan type up to $350,000 can be borrowed and upfront fees are waived for those who qualify.
- SBA’s 7(a) Loan Program – It’s possible to borrow up to $5,000,000 with this type and a waiving of upfront fees, or 50% off when the amount borrowed is over $125,000.
- MREIDL (Military Reservist Economic Injury Disaster Loan) – This loan type is to provide a safety net for small businesses that are eligible after experiencing the financial strain due to a key employee or owner being called up for duty.
It should be noted that these loans are available for non-veterans too, however, the benefits of the upfront fees reduction are reserved for veterans only.
What Is Special About Loans For Veterans?
What’s interesting is that the SBA isn’t the body that loans the money out to veterans; it’s the financial institutions such as banks, while its the federal government that guarantees SBA loans for veterans. Here are some traits that veteran loans have:
- No Collateral – This is true for loans up to $25,000. However, beyond this point, participating banks might only offer secured loans for veterans.
- Depending on the loan amount that’s approved, your loan program can give you a guarantee of between 85% for loans up to $150,000 and 75% for loans up to $3.75 million.
- The MREIDL loan is unique given it’s only approved if the SBA has determined that the business simply cannot financially keep itself above the water without the key person that was drafted or called up. These loans are up to 30 years with a cap of around $2,000,000 but are approved and judged on a per-case basis.
Who Is Eligible For Veteran Loans?
There’s a very concrete definition of who is eligible for these kinds of loans. Those included are:
- Veterans
- Active military personnel
- National Guard or reservists (past or present)
- A current or widowed spouse
To qualify for the loan programs the company must be owned by a veteran, meeting at the very least a 51% ownership minimum. The company must conduct its business in the US and engage in fields that are approved. Fields of occupation such as speculation, gambling, investing, lending, or real-estate will not be approved.
The loans, once approved, can be used for a variety of goals. These uses span from startup costs to disaster control and many more reasons in between.
What Are The Drawbacks Of Veteran Loans?
Even though it’s well known that veteran loans carry very favorable terms, there are some things to be aware of before applying.
Your business scope may be limited by the various programs and may stop you from exploring alternative routes.
- You have to prove that you can successfully manage the business. There will be various checks as far as experience in a certain field and proficiency to manage the business.
- You need some equity upfront. Founders of a new business must have around a third of the amount borrowed in equity.
- The standards and terms for these kinds of loans are quite rigid and if you have your own wealth, you won’t be eligible for SBA loans and programs backing up your new business.
- If your startup is a non-profit organization, it won’t be eligible for the SBA veteran program.
How Do You Apply For A Veteran Loan?
To apply and receive approval for a veteran loan, the best place to start is the Veterans Business Outreach Center (VBOC). This program provides guidance and training for veterans across the country to help current and former service members understand their options and eligibility for various loan programs.
Even though receiving veteran-oriented guidance is best, the steps for applying for a veteran loan is similar to any other application
- The first step is to review your credit history and make sure you’re eligible.
- The second step is to figure out the exact amount you think you’ll need.
- The third step is filling out the paperwork and comparing various loans, with an emphasis on origination fees (which may be waived) and interest rates which could also be favorable.
The documents required are quite standard and include form DD 214 and/or other supporting documents. Certification of military service might also be required, and a statement of service.
Please note that dishonorably discharged veterans will not be eligible for loans or other programs and benefits.
Conclusion
There’s no doubt that veterans have many options when it comes to starting up a business and that they play an immensely positive role in the entrepreneurship landscape across the US.
Loans to help veterans are attractive, but as always, the fine print needs to be read and understood in order to truly make the best decisions and achieve the best outcomes.
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