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Veterans Business Loans: The Essential Guide

A group of veterans walking together and discussing business loans

It’s not hard to imagine why military service would transfer to entrepreneurial success. Grit, leadership, bravery, and resourcefulness are just a few of the qualities veterans and entrepreneurs have in common. For this reason, it’s no surprise that veterans own just over 2.5 million US businesses. According to the US Small Business Administration Office of Advocacy, veteran-owned companies employ over 5 million people and generate $1.14 trillion in annual revenue.

Unfortunately, veterans have traditionally faced several obstacles when seeking the means to grow and sustain their businesses. This may explain why only 7% of veteran-owned companies survive past the 10-year mark.

In this guide, we’ll answer the following questions and more:

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    Why Do Veterans Have Limited Access to Business Loans?

    Perhaps the most common obstacle faced by veteran business owners is their lack of business-related experience. When mulling over business loan applications, traditional institutions like banks want to see at least two years in business and extensive credit history. Most bank loan recipients have worked in their industries since young adulthood and have likely been involved in numerous business ventures. Banks also prefer borrowers with vast funding amounts at their disposal, possibly from investors or other wealthy benefactors.

    On the other hand, veterans tend to start their businesses entirely independently, despite having little (if any) experience in their industries. Since they’ve spent their lives in the military, they haven’t had the time to build up extensive credit histories. Many veterans possess the skills to grow their businesses. But when loan underwriters look at their resumés, all they see is limited time in business, no finance or sales experience, and lower working capital.

    Todd Connor, a Navy veteran and the CEO of the Bunker Labs incubator for veteran-owned businesses, told Inc. in 2016 that today’s veterans have an incredibly difficult time finding investors. Most of them come from military families, so their social circle is primarily made up of other veterans. Todd said the only veterans with outside networks are high-ranking officers with connections to elite academies like West Point.

    How To Improve Business Loan Eligibility for Veterans:

    Many public and private programs provide business funding to veterans. They do not require high credit scores, several years in business, and vast bank balances. However, there are several measures business owners must take to access these programs.

    First on that list is becoming verified as a veteran-owned business. Luckily, the verification process is reportedly getting less complicated every year. Business owners must complete a pre-qualification stage before sending their applications. Each application is also assigned a single point of contact, which prevents the VA from being inundated with phone calls asking for help. Both measures ultimately lessen the time it takes to approve an application for verification.

    1. Lower Personal Debts

    Next, you’ll want to do everything you can to decrease the amount of personal debt you are currently carrying. Entrepreneurs who start their businesses are more likely to have high personal debt since they had to cover startup costs with personal finances. But if you’re carrying too much debt or have fallen behind on monthly payments, it will be challenging to access small business loans, regardless of where you apply.

    Thankfully, the Servicemembers Civil Relief Act (SCRA) allows some veterans to lower the interest rates on any debts they incurred before their military service. If you qualify for SCRA relief, you can reduce the interest rates on things like your mortgage, car payments, and credit card debt. Lower monthly payments allow you to start fresh and establish a track record of timely payments. Financial institutions will also be pleased to see that you took action to handle your debts responsibly.

    2. Get Paperwork in Order

    Every program and institution has different requirements in terms of paperwork. You might have to supply business licenses, rental contracts, organizational documents, etc. Public programs usually require more paperwork and information about your business. Unlike online lenders, you might need to supply several years’ worth of tax returns. So, before you start filling out the application, make sure you have the required paperwork and information in order.

    Online lenders and alternative business financing companies can distribute funding much faster than public programs. But only if you can provide the required paperwork and information (i.e., credit score, annual revenue) just as quickly.

    3. Be Clear About Why You Need the Money

    If you seek a substantial amount of money, you may need to explain how you plan to use it. In other words, you must be able to justify why this exact amount is precisely what you need for this specific purpose. New entrepreneurs often make the mistake of taking on too much debt or trying to borrow as much money as possible. Thus, you must prove that you have a concrete plan for using the borrowed funds to grow and sustain your business. For example, if you plan on using the money to bridge a gap in cash flow, you’ll want to explain why you won’t find yourself in the same situation soon.

    4. Use Your Military Experience to Support Your Argument

    Financial institutions don’t just lend to businesses. They lend to people, which is why your background is so important. Veterans must use their military experience to support their capacity to achieve their business goals.

    Since humility is a core value of the military, veterans typically aren’t used to selling themselves. But at the same time, an integral element of entrepreneurship is making the best use of your resources.  For veterans, their best resource is that they have already proven their ability to conquer unbelievable challenges. But institutions won’t know that until you tell them.

    Which Private Companies Lend to Veteran Business Owners?

    StreetShares is a veteran-owned company that connects veteran business owners with investors. The application process is straightforward, and you can get pre-approved in just a few minutes. Though credit score is taken into account, competitive rates and substantial amounts are still highly accessible for applicants with bad or little credit history. And in addition to business term loans, you can also apply for a business line of credit up to $250,000.

    Online lender Accion works with all sorts of business owners, but it also offers veterans a particular business loan. Though their interest rates tend to run on the higher side, Accion considers several eligibility factors instead of just a credit score. Thus, new business owners may have less difficulty qualifying for their products.

    Which SBA Programs Offer Business Loans for Veterans?

    Here are two SBA programs that offer business loans to veteran-owned businesses:

    1. Military Reservist Economic Injury Loans

    This program is for veteran business owners whose businesses suffered because they had to return to active duty. Interest rates run as low as 4% with terms of up to thirty years. However, you will need collateral to borrow more than $50,000.

    2. SBA Express Loans

    SBA Express Loans are available for any business, but veterans can have their upfront fees waived. Other borrowers would have to pay an upfront fee of 2% or 3%. But to qualify, you must have a credit score of at least 640 and provide collateral.

    These are just a few of the many private and public business loan resources for veterans. Consider the desired funds’ purpose and your business’s most notable strong points to narrow your search. This will allow you to find resources that cater to veteran business owners facing the same dilemma as you.

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