Veterans, military, spouses get a break on SBA loan fees

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September 26, 2017


Key Points

Small Business Administration's Veterans Advantage Program

  • Designed specifically for military veterans, active-duty service members as well as the spouses or widows of service members
  • Fee-waiver program dovetails with the SBA’s popular 7(a) loan program for small businesses
  • Provides a 50 percent reduction on fees for the government-insured portion of a 7(a) loan
  • Loan uses include buying or renovating real estate, construction financing, refinancing business debt and long-term working capital

The U.S. Small Business Administration trims an average of about $4,000 in upfront costs off commercial mortgage loans under a program designed for businesses owned by veterans, those in the military and some of their family members.

Under the Veterans Advantage Program (VAP), loan-guarantee fees for the SBA's most popular program, the 7(a) loan, are reduced by 50 percent for veterans, as well as active-duty service members and their spouses or widows.

The savings vary depending on the amount the agency guarantees under its 7(a) loan program. Although it can guarantee portions of loans up to $5 million under the program, the average loan size is about $365,000. The SBA can guarantee 75 percent of such a loan, and charge a fee of 3 percent on the insured portion, or about $8,000, on average. The VAP fee reduction cuts that figure in half.

There are some exceptions that the agency lists on its website, but the 7(a) program is generally available to for-profit small businesses that operate in the U.S. and whose owners have personally invested equity in the company.

The uses allowed for the loan proceeds are fairly broad, including buying or renovating real estate, construction financing, refinancing business debt and providing long-term working capital to pay for operations and inventory. The money can't be used to fund a partial change in business ownership, to retire back taxes or to fund unsound business practices, as defined by the SBA.

VAP was created in 2013 and originally applied to loans of $350,000 or less. In 2015, it expanded to include all loans made to the eligible veterans, active military and family under the 7(a) program.

According to SBA rules, the discount is available to businesses that are 51 percent or more owned and controlled by individuals in any one of the following groups:

  • Honorably discharged members of the U.S. military
  • Service-disabled veterans;
  • Active-duty military service members participating in the military’s transition-assistance program;
  • Reservists and National Guard members; and
  • The current spouse of any veteran, active-duty service member, or any reservist or National Guard member; or a widowed spouse of a service member who has a service-connected disability or who died while in the military service.

Like all SBA loans, financing under the 7(a) program originates with banks and other private lenders, who then seek the government-loan guarantee. The lenders collect the documentation showing that individuals qualify for the fee reduction.

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