Blog > Transition

Small Business Loans for Veterans

by Jeff Gitlen, LendEdu.com

It can be difficult leaving the military. The transition back to civilian life is complicated enough, but then you have to plan for the next stage in your career. However, you've acquired many great skills while serving which opens up certain opportunities for the entrepreneurial veteran.

Many veteran men and women end up starting their own companies because they struggle to find work. In fact, 2.4 million veterans currently own businesses, according to the Small Business Administration. Being a business owner allows you to use the leadership skills and discipline that you learned while serving your country to benefit your bottom line. But starting a business comes with challenges, and you might need funds to help you start or grow your business.

The good news is that funds are earmarked for veterans, and you can potentially access them to make your business dreams come true. Wondering what kind of bureaucratic hoops you’ll have to jump through to take advantage of those programs?

Here’s a rundown of the best ways to access money for veterans, whether through traditional lenders or grants and programs that are designed to help you boost your business.

Traditional Financing

There are a number of different kinds of traditional financing available to business owners. The first hurdle to accessing it is making sure you qualify for it. In order to qualify for most traditional forms of funding, you need to have a good credit score and a high enough income to give the bank the confidence that you’ll be able to repay the small business loan. Some lenders also require that you be in business for a certain number of years, that you make a minimum amount of revenue, or have a certain number of employees in order to qualify.

That can make it difficult to find money when you’re just starting out. Unless your business has built up its business credit, you’ll most likely be limited to borrowing only how much you personally qualify to co-sign for. But if you build your business credit, you can potentially borrow more in the future with better rates and without having to co-sign for it.

How do you build business credit? First, consider applying for credit as soon as you launch your business. This could be a line of credit, a loan, or a credit card. While you’ll have to co-sign for this credit, you will start building your business credit immediately. This is important since the length of your credit history is a factor in determining your business credit score.

You can also take out trade lines with common suppliers like office equipment or materials suppliers. This will give you a longer time to pay your invoices. Many of these companies also report your payments to the business credit bureaus, which helps you build your business credit score.

Is It Harder for Veterans to Get Business Funding?

With traditional small business loans for veterans, lenders are theoretically supposed to treat everyone equally. But as a veteran, you could struggle to borrow because you don’t currently have income due to being recently discharged from the military or if you’re retired. You might also suffer because your income could have been lower while you served in the military than that of someone who worked as a civilian.

That said, there are many companies that want to support military servicemembers, so you might be granted some leniency in qualifying for veteran business loans. This could be particularly true with banks or credit unions where you deal with a person when you apply, unlike online lenders that make lending decisions exclusively based on numbers. Also, credit unions that serve former or current military members or their families would be more likely to understand your situation, making it a potentially good option for you.

Traditional Financing Explained

In terms of traditional financing options, you might consider getting a traditional bank loan or a credit union loan. Both are similar in that they are installment loans that allow you to take out a set amount and repay it over a specific term length.

One difference between these two credit vehicles is that big banks tend to focus their small business loans toward medium to large businesses, whereas credit unions are more likely to target small businesses. That means that you’re more likely to get approved at a credit union. Furthermore, the minimum borrowing amount is likely to be smaller, which might make it a better fit for your company.

Another difference is that credit unions are nonprofit organizations that were created to provide financial services for their members. That means their interest rates and terms can sometimes be more favorable than you might get with bank loans, since banks are trying to make a profit. The one catch is that you have to meet a set of membership criteria in order to qualify to borrow from a credit union.

Online small business loans for veterans are also popular, and they run the gamut from regular loans to crowdsourced loans to lines of credit. Some online small business loans have very high interest rates, plus repayment terms that make it hard to save money if you repay your debt early. However, some online small business lenders can offer you much more flexibility and lower interest rates than you would find from banks. It’s important that you shop around to find the best option for what you need.

Another financing vehicle to consider is a line of credit. It’s like a credit card in that you can borrow money, pay it back and then borrow money again. The challenge with lines of credit is that they often have variable interest rates. This means that, unlike fixed-rate business loans, the amount you owe in interest can go up or down based on changes in interest rates. But the flexibility you get from having a line of credit could be critical if you need to borrow money to deal with cash flow issues or in case of an emergency.

Another traditional financing option is invoice factoring. There are a number of companies that give you advances on your invoices. While factoring can be a great source of quick cash – and doesn’t require a credit check for approval – it does charge a steep fee. The interest rates can be as high as 3 percent to 5 percent for 30 days – which works out to an APR that’s over 36 percent to 60 percent if averaged over the year.

Small Business Loans for Veterans and Other Programs

The good news is that there are small business loans for veterans, which means you’ll have a better chance of qualifying for them and being approved. Here are some of the top loans that you’ll want to look into.

1. Military Economic Injury Disaster Loans

Are you a reservist who is also an entrepreneur? If you were called to active duty, your business would likely have suffered. But there is a program that provides low-interest loans to those who served their country and want to rebuild their businesses once they return home.

The MEIDL program charges a low 4 percent per year. Term lengths vary but can be up to 30 years.

How much you can borrow varies based on your personal financial situation and business, and can be as much as $2 million, but you’ll need to have collateral if you want to take out business loans for veterans over $50,000. It can also be difficult to qualify for this loan, as you’ll have to prove that you can’t access other kinds of credit or that your business could fail if not for government intervention.

2. Veterans Business Fund

There are nonprofit organizations like the Veterans Business Fund, that are dedicated to helping veterans open, expand, and purchase a franchise. They are not currently set up to lend yet, but they plan to provide loans with favorable terms to veterans who have trouble getting a traditional loan due to a lack of equity. The VBF’s loans wouldn’t charge interest. They would also help you secure other funds such as an SBA or conventional bank loan.

3. SBA 8(a) Service-Disabled Veteran-Owned Small Business Concern Program

Sometimes you don’t need a loan – you need business. The SDVOSBC program helps your business secure government contracts. As part of the program, your business gets special access to contracts that are specifically for veterans only. That ensures you have access to revenue – which will fill your coffers and potentially help you secure a loan from another lender since you can prove you have income coming in.

4. SBA Veterans Advantage Express Loan

The SBA’s small business loans can be a good option, but their main loan program can take a while to process your application. That’s why their Express Loans program is so popular. They allow you to apply for and borrow up to $500,000 for your business through a streamlined process that focuses on ensuring you get your money quickly.

But if you’re a veteran, you get an even better deal. You’ll pay zero upfront fees on SBAExpress Loans for $150,001 to $350,000, plus get expedited approval.

5. StreetShares

StreetShares is owned by veteran entrepreneurs, and its online marketplace allows entrepreneurs to connect with investors who are interested in funding a loan for your small business.

It provides extra help to veterans who are seeking loans by connecting them with another veteran to help them create the best loan application possible. With StreetShares, you can get funded in as soon as a few days.

Small Business Grants for Veterans

Sure, you can borrow money, but you’ll have to pay it back if you do. A grant is something you get and never have to return. Who doesn’t love free money? Here are some grants specifically aimed at veteran business owners.

1. USDA Veteran and Minority Farmer Grant

Like kale? If you like it so much that you want to grow it, you can get a grant from the 2501 Program that the Department of Agriculture runs. They give small business grants to veteran farmers who are just starting their farms or looking to expand their businesses. They also help with things like training, education, outreach, and other kinds of vital support.

2. Franchise Discounts

If you want to open your own franchise, some companies give veterans discounts on their fees as part of the Veterans Transition Franchise Initiative. For example, UPS gives a veteran $10,000 off the franchise fee and a 50 percent discount on the application fee.

Little Caesars offers veteran franchisees several bonuses, too. Vets get $5,000 off the franchise fee and $5,000 off equipment. If you’re disabled from service, you get $20,000 off your franchise fee and $10,000 in benefits.

3. StreetShares Foundation

You can get up to $5,000 in free money for your business from StreetShares Foundation. The organization gives out three awards of $5,000, $3,000, and $2,000 to veteran-owned businesses. They choose the winners based on your business plan, how you’ll use the funds, the potential impact of the awards, and how the business idea will impact the military or veterans.

4. National Association for Self-Employed Growth Grants

If you’re looking to grow your business, a grant from NASE can help. They provide grants to small businesses in order to help them with things like expanding, hiring, or training. To qualify, you have to meet certain criteria and also show that you have a business need. You’ll also need to become a member of NASE, and you get a discount as a veteran.

Veteran Business Investment and Other Opportunities

Want to get an investment in your company rather than a loan or a grant? Here are some great options for investment.

1. TCP Venture Capital’s Veterans Opportunity Fund

One great option if you’re looking for an investment from a venture capital firm is to consider TCP Venture. They focus on helping veteran-owned businesses who are looking to grow. You’ll need to pitch them in order to get access to their funding, and they’ll take an equity interest in your business in return for their investment. But they are a well-connected and well-respected firm that can help you grow your business.

2. Hivers and Strivers

Graduates of one of the country’s military academies qualify for help from Hivers and Strivers. This angel investment group gives you funding and becomes involved in your company in other ways to help you.

You can get people from the organization to serve as advisors or board members, and they can mentor you and help you by sharing their expertise, networks, and support. They offer investments of between $250,000 to $1 million, according to Independence for Women Veterans of America. But if you need more money, they can connect you with their network of investors.

3. The Bunker

Want to start a technology startup? Great! Bunker Labs is a startup resource that helps technology startups that are owned by veterans. When you work with the program, you can get access to several different resources. Veterans can learn about accessing investor capital for their business. They can learn through mentorship programs and receive support and networking opportunities. They have a number of events and talks designed to help you learn crucial skills and tips for growing your business.

4. HCC Fellows Program

If your startup needs to be incubated, the HCC Fellows Program is an eight-week startup incubator designed to help veterans start and grow their businesses. They organize classes, talks, and events to help you gain the skills you need in order to succeed as an entrepreneur. At the end of the program, you can pitch your business to investors.

5. Vet-Tech

Located in the Silicon Valley, Vet-Tech is a veteran startup accelerator that connects veterans with investors from venture capital firms and other startup accelerators. They’ve raised over $10 million for companies that they have worked with and have over 250 partners and mentors. So far, they have helped over 100 veteran startups. They don’t give you funding directly but allow you to raise money through their funding network.

6. Taking Advantage of a Thrift Savings Plan

For those who don't know, a thrift savings plan is a type of retirement savings and investment plan; it is specifically for federal government employees which includes uniformed servicemen. It works similarly to a 401(k) with the same tax benefits.

A savvy veteran can utilize their contributions to their advantage in order to finance a business down the road after a military career. If you find that financing is hard to come by, then rolling this thrift savings fund over towards your business is a possible alternative. If done correctly, it's possible to take out a loan without penalties, but it bodes well to consult an advisor before doing so.

Before you consider this, there are a few things to keep in mind. Anything you take out of a retirement fund is going to reduce your savings for, well, retirement. This is a big risk with the chance of losing out on your savings. Yet, this risk is somewhat similar to taking out a traditional loan. If the business were to fail, paying back the loan would draw on certain assets which could include retirement savings regardless.