SBA Loans For Veterans: Everything You Need To Know About VA SBA Loans
After serving their time in the military, many veterans choose to start a business. Military veterans own about 7.5% of the businesses in the United States. Just like any other small business owner, there comes a time when these entrepreneurs need funding, whether it’s for purchasing equipment, expanding the business, or funding a startup project. And like civilians, many veterans are looking for a business loan that will help them expand their business without forcing them to take on extra debt. For these business owners, an SBA VA loan could be the answer.
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What Is The SBA?
Before going into the specifics of SBA loans for veterans, it’s first important to know what the SBA is and how it offers benefits to small businesses. SBA stands for Small Business Administration. It’s a government organization that assists small businesses. Through the SBA, business owners have access to education, information, and training. The SBA serves as an advocate for small businesses and provides a critical piece of the entrepreneurial puzzle: business financing.
How Can The SBA Benefit Veterans?
Getting a business loan is tough for anyone, but it can be especially difficult for military veterans. Traditional loans require a strong financial history, and many veterans and service members on active duty may have gaps in their credit history. Veterans who deployed for any length of time might not have the records credit unions use to judge creditworthiness. These include credit cards, utility bills, or mortgage payments. It can make obtaining a business loan very difficult, if not impossible. That’s where the SBA can be of service to veterans. SBA loans require the typical paperwork and items, such as credit scores and income verification. However, lenders can work with military veterans’ unique situations to provide them with the funding they need. Because the SBA backs these loans, lenders are more willing to lend to qualified borrowers. Plus, business owners enjoy VA SBA benefits, including low-interest rates and flexible terms. (This is ideal because veterans won’t be stuck getting subprime, traditional loans that can push them into debt or even bankruptcy.)
Types Of SBA Loan Programs For Veterans
The SBA offers multiple programs that provide money for veterans and service members. SBA disabled veterans loans can also help inactive service members who were injured in the line of duty. SBA loans are often difficult to obtain, but selecting the right product beforehand and knowing what to expect during the application process can help ease the path to securing funding.
The Veterans Advantage Loan Program
The Veterans Advantage Loan Program is similar to the 7(a) Loan Program — the most popular option for SBA loans. It’s a popular choice for veterans and civilians alike because they can use the loan for just about anything. This includes expanding a business, acquiring a new business, financing a franchise, renovations, construction, equipment, working capital, or even refinancing old debt.
The Veterans Advantage Loan Program offers the same great benefits with reduced guaranty fees for veteran-owned businesses. Under this program, veterans can borrow up to $5 million. SBA 7(a) Veterans Loan for business acquisitions and expansions have terms of up to 10 years. Commercial real estate purchases have terms up to 25 years. Equipment financing loans can be paid back over a period of up to 15 years.
For 7(a) Loans less than $125,000, there is no guaranty fee. For loans between $125,001 and $150,000, the fee is just 1%. For loans up to $350,000, the fee is 1.5%. The maximum upfront guaranty under this program is 3.75% for loans from $700,001 up to and including $5 million. Interest rates vary on these loans from 7.25% to 9.75%. Find out more about the terms and rates of SBA 7(a) Loans.
One of the most significant drawbacks to an SBA 7(a) Loan is the timeline for receiving the money. The application, approval, and funding process can take months in most cases. However, the SBA does offer SBA Express Loans for veterans, which can provide faster approval, although the timeline for receiving the funds varies from lender to lender. Through the Express program, the SBA guarantees that the application will be processed within 36 hours. SBA Express Loans for veterans are available in amounts up to $350,000, and there is never an upfront guaranty fee for veteran-owned businesses.
The Military Reservist Economic Injury Disaster Loan Program
Reservists and National Guard members have learned to expect the unexpected. Service members know that a deployment could come at any time, forcing them to leave family, friends, and business responsibilities behind. Military reservists and members of the National Guard who face economic hardship during or after a deployment can get the financing they need for their business with an SBA loan.
The Military Reservist Economic Injury Disaster Loan Program is designed to help cover operating costs while a veteran is on active duty. These loans are available in amounts up to $2 million with maximum terms up to 30 years. The maturity of the loan is based on the applicant’s ability to repay the loan. For these loans, collateral is required for any amount over $50,000. It’s important to note that the SBA will not turn down a loan simply for lack of collateral. Still, the borrower will be required to put up any available collateral, including real estate.
These loans are very attractive to military veterans because of their repayment terms and low-interest rates. SBA Veteran Loan rates are currently set at 4%. These loans provide the working capital needed to pay necessary expenses; funds can not be used for income or profit loss, refinancing debt, or business expansion.
Does The SBA Offer Grants For Veterans?
Unfortunately, there are no SBA grants for veterans. However, the organization provides a variety of resources to give veterans the tools they need to succeed in business. The SBA funds these programs, and they are available to service members, veterans, and in some cases, military spouses.
SBA training programs include Boots to Business, the Women Veteran Entrepreneurship Training Program, Service Disabled Veteran Entrepreneurship Training Program, and the Veteran Federal Procurement Entrepreneurship Training Program. More details on these training programs are available through the SBA website.
What About The SBA Patriot Express Loan Program?
The SBA Patriot Express Loan program was established in 2007. Under this program, veterans and eligible spouses were able to apply for up to $500,000 in business funding at rates that ranged between 2.25% and 4.75%. Unfortunately, this program was discontinued in 2013 and is no longer available. Veterans that wish to take advantage of a similar program can apply for the SBA Express Loan.
Who Qualifies For A VA SBA Loan?
A small business must meet specific criteria to qualify for the Veterans Advantage Loan Program. It must be at least 51% owned and controlled by veterans, service-disabled veterans, active-duty military in the Transition Assistance Program, or a reservist or National Guard member. Spouses of veterans, active-duty service members, reservists, or National Guard members also qualify. This includes spouses who were widowed because of death during service or from service-related disabilities. These requirements also apply to SBA Express Loans.
Non-service members and civilians can apply for an SBA 7(a) Loan under the traditional terms. They will not receive the discounted guaranty rates provided to veterans.
Veterans and service members applying for the Veterans Advantage Loan Program must meet all requirements set forth for SBA 7(a) Loans. Requirements include a credit score of at least 680 (in most cases) as well as personal collateral. The business must not be delinquent on any debts to the government and have no foreclosures or bankruptcies on its credit report. All borrowers should be in business for at least two years, although startups are eligible with adequate industry experience and a solid business plan.
Applicants must also have fewer than 500 employees and less than $7.5 million in sales each year. The business must be for-profit and should have a qualifying need to receive funding. It’s also recommended that applicants seek out alternative resources before applying for an SBA loan. Businesses that engage in investments, rentals, and lending are not qualified. Learn more about the requirements for obtaining this type of loan.
The Military Reservist Economic Injury Disaster Loan Program is available to service members, reservists, or National Guard members who are on active duty. The service member must apply for the loan while on active duty or for a period of one year following the end of active service or discharge.
Any veteran dishonorably discharged from their branch of service is not eligible to receive funding through the SBA Veteran Loan Programs.
How To Apply For SBA Loans For Veterans
After choosing which VA SBA Loan is right for you, the next step is to prepare for the application process. Although the process can be tedious, knowing what to expect and taking the necessary steps will help everything go smoothly.
Credit scores do play a factor in receiving SBA loans. Generally, a credit score of 680 or higher is required. There are multiple online resources that you can use to check your score and obtain a free credit report so that you can address any errors. Please note that if there are any negative items on your report, the lender will require a valid explanation. All lenders review an applicant’s personal and business credit reports.
For the SBA Veterans Advantage Loan program, a potential borrower must choose a qualified lender. The SBA offers a Lender Match service that connects businesses with a lender in their area. While some applications can be completed online, lenders generally require a phone call or in-office visit by the applicant.
For the Military Reservist Economic Injury Disaster Loan Program, contact the Disaster Assistance Customer Service Center via phone or email to obtain an application.
After getting in touch with a lender, it’s time to gather the required paperwork.
- DD Form 214 is required for veterans, service-disabled veterans, or spouses of veterans.
- Transitioning active-duty military members, reservists, and National Guard members must have a copy of DD Form 2.
- DD Form 1173 is required for spouses of transitioning active-duty military members, reservists, or National Guard members.
- Military widows are required to have documentation from the Department of Defense.
To obtain an SBA VA Loan, you must be prepared to show that you can repay the loan, operate your business successfully, and put up 10% to 25% equity. The application process will require additional documentation, including:
- At least three years of business and personal income tax returns
- Financial statements, projections, business certificates, and licenses
- A business plan
Requirements vary, so ask your selected lender about their requirements, so you can gather the needed information.
Veterans who choose SBA Express Loans will receive notification of approval within 36 hours, although funding the loan will take weeks or months. On average, the application, approval, and funding process for SVA 7(a) Loans takes a minimum of 60 to 90 days. If this timeline doesn’t work for you or you don’t meet the qualifications of obtaining an SBA loan, find out more about other funding options for veterans.
Although the process of applying for an SBA loan isn’t easy, the competitive terms make it worth it for many service members, veterans, and their families. SBA Veteran Loans allow those who serve their country to be able to truly live the American Dream through successful ownership of their own business.