If you’re a military service veteran and a business owner, you’re not alone: According to data from the Small Business Association (SBA), about 1 in 10 veterans are self-employed, and veteran-owned businesses employ almost 6 million people.
Military service veterans who want to grow their businesses and are looking into business loans should know that there are special programs just for them. The U.S. Department of Veterans Affairs, also known as the VA, provides many types of assistance to former and part-time service members and their families. Veterans, along with their spouses and widows, can also seek out VA help after they’ve started their own businesses in the civilian world. The VA facilitates veterans’ access to the loan programs offered by the SBA and helps them navigate VA business loan requirements.
As with any type of financing, the loan you apply for should be the one that best fits your needs, and VA business loan requirements will vary based on your situation. Here’s some introductory information about three of the best SBA loan options for veteran-owned or veteran-connected businesses.
This loan program is the SBA’s primary method of giving financial assistance to small businesses, and it offers several variations. Some VA business loan requirements — such as owning a for-profit business, having a feasible business plan and good credit score, and operating the business in the United States or U.S. territories — apply to every type of 7(a) loan.
- The Standard 7(a) loan is available in amounts up to $5 million to businesses. The SBA guarantees 85% of Standard 7(a) loans that are $150,000 or less and 75% of loans greater than $150,000.
- The 7(a) Small Loan has a $350,000 maximum. As with the Standard 7(a), it comes with an SBA guarantee of 85% for amounts up to $150,000 and 75% for larger loans.
- SBA Express program offers an accelerated review of applications for 7(a) loans of $350,000 or less, with responses given within 36 hours. The maximum SBA guarantee for this speedy loan is 50%.
MREIDL: Loan for Military Reservists
In the event that a business owner or key employee is called up for active duty in the Reserves, a business may be eligible for a Military Reservist Economic Injury Disaster Loan (MREIDL) to cover the business’s financial obligations until the Reservist is released from active duty. This loan is intended to provide working capital to cover the business’s operating expenses in the absence of an essential team member. The maximum MREIDL amount is $2 million.
It can be trickier to qualify for the MREIDL, since VA business loan requirements in this case are stringent, and include a federally mandated review of the applicant’s other viable credit options. Before approving a MREIDL, the SBA will determine whether the applicant would be able to access credit from non-government sources without undue financial hardship. If the SBA finds that the business is able to fund its operations through other means, the applicant would not be eligible for MREIDL assistance.
For businesses with smaller financial needs, the SBA distributes funds from its Microloan program through nonprofit community-based lenders. These loans, for amounts up to $50,000, are available to start-up, recently established, and growing small businesses, as well as some not-for-profit childcare centers. The average loan size is about $13,000, according to Benefits.gov.
Each community-based lender, or Microlender Intermediary, has its own eligibility requirements, but most require collateral and the owner’s personal guarantee to make the loan.
Added Benefit: Veterans Advantage
Knowing how to get a VA business loan lets you access a special benefit the SBA provides to veteran-connected businesses. Under the Veterans Advantage program, veteran-owned small businesses get reduced fees on SBA loans. To be eligible for this financial break, the business must be at least 51% owned and controlled by someone who fits one of the following categories:
- Honorably discharged veteran
- Active duty military service member who is eligible for the military’s Transition Assistance Program
- Service-disabled veteran
- Reservist and/or active National Guard member
- Current spouse of any veteran, active duty service member, Reservist, National Guard member, or the widowed spouse of a service member who died while in service or as a result of a service-connected disability
Understanding how to get a VA business loan will help you take advantage of these SBA-administered financial assistance programs and grow your business. In addition to these government-backed loan programs, some banks and credit unions also offer special military rates on business loans made directly to veterans. Be sure to explore both government and private loan opportunities as you look to finance your business growth.