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With over 21 million veterans and 2.5 million veteran-owned small businesses, that means more than 10% of veterans decide to open their own business. According to studies, these businesses employ 5.8 million people and generate $1.2 trillion in annual sales.

Understandably, entrepreneurship has obvious appeal to mission-oriented people with deep leadership skills. Unfortunately, veterans have historically faced a number of challenges as small business owners, particularly accessing business loans to support and grow their businesses. Past barriers to funding may explain why only 7% of veteran-owned businesses survive the 10-year mark, as opposed to the one-third of all small businesses that do.

What’s been scaring traditional business lenders away?

We know that the financial challenges of active duty lead to personal financial challenges once you transition to civilian life. The National Foundation for Credit Counseling surveyed veteran families and found that they carry more credit card and other forms of personal debt than other families. The result is poor credit rating, high levels of outstanding personal debt, and lack of collateral.

At the same time, it’s too easy for many loan officers to overlook a veteran’s particular talents through the unfamiliar language of a military resumé. All they see is a limited business history, lack of experience in finance and sales, and a spotty personal finance record.

To top it off, public programs designed to funnel business financing to veterans have had trouble verifying that the businesses are in fact owned by veterans. These older programs have been retired. New ones, like the Veterans Entrepreneurial Transition Act of 2015 and the SBA’s Veterans Advantage program hold the promise of a government program that might do right by veterans.

Although, even these programs have their limitations. The Veterans Entrepreneurial Transition Act, which would allow veterans to use part of their GI Bill Benefits to open a business, would stay in pilot mode for at least its first three years. “Pilot mode” is legal-speak, meaning very few veterans would actually be able to try this out.

The benefits of the Veterans Advantage Program, like so many SBA programs, don’t really kick in for small business loans. The business loan fee reductions available here start with business loans of at least $150,000. Most small businesses aren’t looking to take on that much debt.

ALTERNATIVE BUSINESS LENDERS STEP IN TO FILL THE NEEDS OF VETERAN-OWNED BUSINESSES

 Just as the alternative business finance market has stepped in to fill the funding gap left for small business owners by banks that won’t offer them business loans, alternative business lenders are doing the same for veteran-owned businesses. Based on your specific challenges, here are some business financing options available for veterans who need anything from a bridge business loan to cover operations during a cash flow crunch to those who’re ready to make a serious investment in growing their business.

Poor credit: Poor credit, anything below 600, can be a high barrier to accessing a business loan through traditional sources. When alternative business lenders review an application for bad credit business loans, they have more flexibility to look at other aspects of the business.

For example, annual revenues can balance out a low personal credit score. The lower the credit score, the more annual revenue a small business will need to show. Yet, even small businesses with annual revenue in the $60,000-$70,000 range may be able to find a small business loan.

For businesses that have a high portion of their revenue coming from credit card sales, like an auto shop or beauty salon, alternative business lenders can offer a merchant cash advance (MCA). With a merchant cash advance, the business owner’s credit score is irrelevant since the cash advance is made based on the business’s average credit card sales. Repayment happens automatically with lenders getting a small percentage of the business’s daily credit card sales until the MCA is repaid. The key to qualify for an MCA isn’t the owner’s credit rating, but how much the business consistently shows in credit card sales.

No collateral: The last thing any small business owner wants to do is risk their house or other important asset as collateral on a business loan. In many cases, veterans may not own their home or have any other potential collateral to put up. An unsecured business loan, which doesn’t require any collateral, may be an option.

Another option is a business line of credit, especially if your credit is in the fair range. A business credit line is a great option for a small business that can easily experience temporary cash flow challenges, like a sub-contractor sitting on invoices. It can also be a better option than a business loan because you’ll only pay interest on the cash you actually use, not the entire amount of credit used. A business line of credit will also typically have lower interest rates than a business credit card.

Tight cash flow due to long billing cycle: If your small business is one of those in an industry with a long billing cycle, you can get financing through an invoice factoring deal. With invoice factoring, the alternative lender provides the small business with cash based on the amount owed the business in its outstanding invoices. As a practical matter, the business sells its receivables to the lender, which then collects on the invoice. Of course, the lender doesn’t pay the full amount on the invoice. The small business owner can get anywhere between 70 to 85 percent of the invoice face value upfront. After the lender collects on the invoice, the business gets topped off with a bit more cash, but less the factor fee held by the lender.

OPTIONS FOR BUSINESS LOANS ABOUND

The financial obstacles often caused by military service don’t have to prevent anyone from fortifying or expanding their small business. Whether you’re a veteran with less than great credit, no collateral, or operating under a constant cash flow crunch, there are small business loans available through a variety of programs.

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