A veteran's guide to business loans
Business loans for veterans
- There are no blanket government-backed business loans for veterans, but veterans are eligible for fee waivers on conventional SBA loans.
- The SBA offers loan-guarantee programs for service-disabled veterans and businesses affected by reservists called up for duty.
- State and local governments often provide business financing programs for veterans.
- Federal and nonprofit entrepreneurship programs also exist to support veterans.
Veterans who have transitioned back into civilian life are an important engine of growth for the U.S. economy. According to an April 2017 report by the U.S. Small Business Administration (SBA), the nation’s 2.52 million veteran-owned businesses account for 9.1 percent of companies in the country.
The SBA does not issue financing, but guarantees certain bank loans in order to provide veterans with more favorable business-loan conditions. Programs are limited, however. With the expiration of the SBA-backed Patriot Express Loan and Veterans Advantage Loan programs in 2013 and 2014, respectively, government-backed business loans open to all veterans no longer exist.
SBA benefits for vets
All veterans may apply for conventional SBA loans open to any small-business owner. Veterans facing certain challenges, however, have access to special fee waivers, loan guarantees and government contracting opportunities.
- Veterans Advantage fee relief. The most accessible of the SBA’s benefits for veterans, the Veterans Advantage eliminates the 3 percent upfront guaranty fee required for conventional SBA-backed loans of less than $150,000 and reduces the fee by 50 percent for loans between $150,001 and $500,000. Most veterans are eligible, including honorably discharged veterans, service-disabled veterans, active-duty service members in the Transition Assistance Program, reservists, National Guard members, current spouses of veterans and widowed spouses of service members who died in the line of duty or from a related disability.
The business must be 51-percent owned by a qualifying individual to be eligible. As 73 percent of SBA loans obtained by veterans are for amounts of $350,000 or less, it is a popular option available to most veteran business owners.
- Military Reservist Economic Injury Disaster Loan (MREIDL). This SBA-backed loan is designed for small businesses that were negatively impacted when a reservist employee was called up for service. The business does not need to be veteran-owned, but the reservist’s contribution must have been significant enough to hamper the business with his or her departure.
Furthermore, the business must demonstrate that it does not have access to affordable financing from conventional lenders. Eligible businesses can access up to $2 million at a 4-percent interest rate and repayment term of up to 30 years. Loans of more than $50,000 require collateral backing to some degree, so compare MREIDL lenders for the best loan terms.
- Veteran Pledge Initiative. In 2013, the SBA rolled out a program where select SBA lenders committed to increase their SBA lending to veteran business owners by 5 percent per year for five years, often by reducing or waiving fees. Compare participating lenders in your region to see what SBA loans you qualify for and what veterans benefits are offered.
- Service-Disabled Veteran-Owned Small Business Concern Program (SDVOSBC). More than 7 percent of veterans that own small businesses identify as service disabled. The federal government aims to hire businesses owned by service-disabled veterans for at least 3 percent of its contracts and subcontracts. SDVOSBs have the top priority when it comes to contracting targets for disadvantaged populations.
In 2016 the government exceeded its 3 percent goal to reach a 3.98 percent contracting level with SDVOSBs. Designated small businesses owned by service-disabled veterans are eligible for sole-source government contracts of up to $5.5 million in manufacturing and $3 million for all other industries. The U.S. Department of Veterans Affairs’ Office of Small & Disadvantaged Business Utilization keeps an index of procurement, contract and acquisition resources.
SBA entrepreneurship efforts
The SBA’s Office of Veterans Business Development operates Veterans Business Outreach Centers across the country to help veterans looking to start or purchase a business.
Some of their programs include:
- SBA Boots to Business training program.Part of the U.S. Department of Defense Transition Assistance Program, the SBA funds training programs for veterans looking to start a small business. Veterans can register for the course at the transition-services office of their military branch.
- Support for women veterans and military spouses.Women own more than 15 percent of veteran-owned small businesses. The SBA supports business-development programs for women veterans and military spouses through its Women Veteran Entrepreneurship Training Program grants.
As of mid-2017, grant recipients included the Veteran Women Igniting the Spirit of Entrepreneurship program at Syracuse University, the Entrepreneurial Program for Innovation and Collaboration at Bunker Labs, and the San Antonio Lift Fund. Each organization provides small-business education and training programs.
Local programs for vets
With the limited federal financial assistance available to military veterans and their families, many states and cities try to fill the gap and offer business financing and development programs for veterans. Louisiana, for example, offers the Louisiana’s Veteran Initiative to assist veteran and service-disabled veteran-owned businesses win more state government contracts. In June 2017, Austin, Texas, debuted a $250,000 microloan pool for veterans, which grants business loans of up to $35,000 at interest rates as low as 2 percent.
The Veteran Entrepreneur Portal sponsored by the U.S. Department of Veterans Affairs’ Office of Small & Disadvantaged Business Utilization provides access to a nationwide database of financing- and business-assistance programs available to veterans.
The small-business loan with the best rates and terms for you may not be available through a veteran-specific program, so be sure to compare lenders and the financing-assistance programs they offer carefully before making a borrowing decision.