Are you a disabled veteran, serving or retired military personnel? If YES, here are 7 best sources of VA small business loans and their requirements.
What is VA Small Business Loan?
Veteran Administration (VA) loans are actually loan guarantees made available from the Small Business Administration (SBA) to Veterans or soldiers or their wives or widows who are going off to serve in the military or who have returned from their military service.
VA guaranteed loans are not made by the government but by private lenders such as banks, savings and loans, or mortgage companies to eligible veterans. The guaranty means the lender is protected against loss if the borrowers fail to repay the loan.
How VA Small Business Loan Works
The government works in conjunction with the small business administration to guarantee every loan made to veterans under the VA policy. Thus, the SBAs are not the actual lenders. Lending institutions like banks or credit unions make the loans. The federal government guarantees your loan. If your loan is less than $25,000, you do not have to have collateral for it. If it is between $25,000 and $350,000, the lending institution may require collateral.
Interest rates for the loans usually range from 2.25% to 4.75% over the current prime interest rate. Know that you may be able to negotiate a lower interest rate with your specific lender. You can try to see if you are allowed to do this.
Why Apply for VA Small Business Loans?
Going by a research conducted by the U.S. Small Business Administration, it found out that veteran-owned businesses make up 9.1% of all businesses in the united states. This goes to mean that veterans own approximately 2.52 million businesses in the total in the United States. This research also found out that veteran-owned businesses employed over 5.03 million people and they had an annual payroll of $195 billion.
Knowing very well the role veterans play in uplifting the economy of the country, the U.S. Small Business Administration has taken an active part in ensuring that veteran-owned businesses receive the funding they need through the SBA Veterans Advantage Loan Program.
The Veteran Administration (VA) SBA loans are designed to give veterans the finances they need to start, improve, grow their small businesses, hire new employees, purchase equipment or fund marketing expenses. The SBA offers veterans low to zero percent interest rates on loans as well as numerous other benefits to make receiving funding and paying back loans as easy as possible.
A Detailed Guide on How to Get VA Small Business Loans
Getting financing is not always easy, more especially for U.S. military veterans, whose financial history may be porous due to the time devoted to active duty. Of course when they are in active service outside the country, there is a financial gap and they are not building credit.
Fortunately, many government agencies, nonprofit organizations, traditional institutions and online lenders offer financing customized for veteran businesses. These often come with discounted rates and fees, and can be less expensive than traditional business loans.
7 Types of VA Loans Available to Veteran Businesses
VA loans do not actually originate from the VA or Veterans Administration. The Small Business Administration has an Office of Veterans Affairs that oversees business loans that are given to veterans. These funds are not provided as grants, they are standard loans that require repayment, with an interest rate attached.
VA loans are typically limited to former military personnel from any branch of the Armed Forces. However, some loans allow military spouses and other relatives of veterans to apply for special funding. Veteran-owned businesses with a long track record of healthy finances can qualify for almost any type of business financing. Some of the most popular ones include;
- SBA Veteran Advantage loans
The most popular type of Veteran Advantage loan is the SBA Express loan. With this type of loan option, veteran-run businesses are allowed to borrow up to $350,000. This loan comes with low interest rates and reduced upfront guarantee fee. To qualify for this loan as a veteran, you must have at least 51 percent ownership of the business you are running. You also must have been honorably discharged or are active duty member of the Transition Assistance Program.
- Military Reservist Economic Injury Disaster Loan (MREIDL)
The Military Reservist Economic Injury Disaster Loan (MREIDL), also backed by the SBA, offers low-interest financing to businesses that have suffered because an owner was called into active duty. The rates available for this loan hover around 4 percent and the loan is designed to help these businesses get back on their feet with the absence of their main owner.
To qualify for this loan, you must have been released from active duty less than a year ago and you should equally prove that your business would not be able to recover without external financing. However, keep in mind that the program requires collateral for loans over $50,000. This, on top of other stringent SBA requirements makes this loan tough to get.
The purpose of this loan is to provide for the business’s necessary expenses that cannot be provided for because the essential employee is not present in the business. The purpose of this loan is not to replace lost profits. The purpose is to cover financial obligations and replace working capital so the business can survive.
Again, this veteran business loan is only the right fit for a select category of military personnel. In addition to the above criteria, the SBA is required by law to determine that the business would be incapable of recovery without government intervention.
- Peer-to-peer loans for veterans (StreetShares)
There exist peer-to-peer marketplaces like StreetShares that are designed to connect veteran business owners to investors who fund business financing. The company operates as on online auction marketplace that connects entrepreneurs directly with investors with an interest in small businesses.
StreetShares has a strong focus on providing veteran business loans by connecting veteran business owners seeking funding with fellow comrades in arms to walk them through the ten-minute application process. This is essentially veterans helping other veterans.
- SBA 8(a) Service-Disabled Veteran-Owned Business Contracting Program
The Small Business Administration helps veteran small business owners, harmed in the line of duty, secure a certain amount of government contracts with the SDVOSBC program.
While this is neither a small business loan for veterans nor a veteran-specific grant, the SDVOSBC initiative puts jobs on the market for veterans only, giving special attention to those who served when they would otherwise be competing with everyone else in their industry.
- Veteran franchising financing
Several corporations like UPS and 7-Eleven offer special financing options for veterans who want to open a franchise. With 7-Eleven, for example, you can get a significantly reduced franchising fee and unique financing options that are only available to veterans. If you’re eligible, you can receive up to 20% off the initial franchise fee, up to 65% financing.
- Veteran nonprofit loans
Veterans that want to run nonprofit businesses also have an option of loans that can suit them. These loans are highly discounted and can come with interest rates as low as 0%, though the loan amounts are usually not much. The Veteran Business Fund is a good example of this loan. Nonprofits sometimes also offer help in getting additional financing from the SBA and other veteran-friendly lenders.
- Hivers and Strivers
This loan program is for veterans that graduated from a U.S. military academy and are looking for a veteran business loan. This angel investment group specializes in startups run and managed by academy graduates, especially from West Point, Annapolis, the Air Force, and the Coast Guard.
4 Steps to Getting a VA Small Business Loan
VA small business loans like have been said are any type of debt financing geared towards helping veteran entrepreneurs grow their businesses.
VA small business loans come with certain requirements, and these requirements should be met before one can be approved for a loan. These steps required in getting a VA loan are not much different from a normal business loan. They are thus;
- Enumerate what you need the loan for and how much you need
Most entrepreneurs know that they need a loan, but they may not be too sure what the loan they intend asking for would be used for. Before you apply for a VA business loan, you have to know what purposes the loan would serve in your business, and how much you really need.
This information is very important because the lenders you choose would equally ask for it. Again, the amount of funding you need would determine the best lenders for you, so you must know exactly how much you need and what you need it for.
- Get your documents in order
Getting a VA business loan will always be easier for you if put every document you need for it in order. While the VA small business loan requirements will certainly vary from lender to lender, almost all business lenders will want to see the following:
- Your personal and business credit scores, bank statements, annual revenue, time in business, personal and business tax returns, profit and loss statements, financial statements for your business for the past two years, a balance sheet for your business for the past two years, lease agreements, proof of business ownership, business asset transactions, state filings, your personal financial information, a detailed long-term business plan, and so on.
The more financial documents you are ready to provide a lender, the better. The lender will be able to better evaluate whether or not investing in your business is a safe bet.
- Evaluate Your Loan Options
In almost every case, the best option for your business is the least expensive option. Typically, you would not know which type of VA business loan that is the least expensive until you’ve shopped around.
Research is an especially important step to getting veteran business loans if you have struggling credit. Business owners with struggling credit tend to only qualify for steep VA business loan rates. However, if you’re in this scenario, you don’t want to accept an offer with a higher interest rate than is necessary. If you do, it will really cost your business.
- Apply for Veteran Business Funding
Once you have found the best VA small business loan funder for your business, you can now go ahead and send in an application. You are advised to fully review your business loan agreement before accepting any offers you are given.
Go through the fine print with a fine toothed comb looking for business loan fees that come with your loan, and the terms at which you’re agreeing to repay. You want to be fully confident before going into your loan that it’s affordable for your business (fees included) and that it has the right repayment structure for you.
Who is Eligible for a VA Business Loan?
Because this loan is geared towards the military, this then means that all active military personnel, veterans, service-disabled veterans, and their current spouses or widows are eligible for these loans. But it should be noted that veterans who received a dishonorable discharge are not eligible for the loan programs.
If you are an active duty personnel within 12 months of separation or a retiree within 24 months of retirement, you can qualify for the SBA Express Loan Program. Reservists and National Guard are also eligible as well. It’s ultimately up to the VA to determine eligibility for the loan program, but prospective borrowers can get a good idea by looking at the VA’s basic eligibility guidelines. Their guidelines stipulate that;
- You must have served 90 consecutive days of active service during wartime, OR
- You must have served 181 days of active service during peacetime, OR
- You must have more than 6 years of service in the National Guard or Reserves, OR
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
How to Apply for a VA Loan Certificate of Eligibility (COE)
While you don’t need your VA Certificate of Eligibility in hand to start the loan process, this certificate is a very important part of your loan application, and would be required of you. Your COE verifies that your length and character of service make you eligible to use the loan.
You can apply for a VA Loan Certificate of Eligibility three different ways:
- Apply through a VA approved lender
- Apply online through the VA’s eBenefits portal
- Apply by mail with VA Form 26-1880
- VA Loan applicants can contact the Veterans Administration directly and fill out a Certificate of Eligibility (VA Form 26-1880).
Businesses That are Allowed to Borrow a VA Business Loan
Most businesses meet the eligibility requirements for a VA loan. However, there are businesses that are not eligible to apply for a VA business loan. Such businesses include; pyramid schemes, gambling businesses of any sort, and lending businesses. Also, the business must be a for-profit business. Non-profits are not eligible, at least not for all loans. Also, the business must be at least 51-percent owned by a qualified veteran (according to the definition above).
Things a VA Business Loan Can Be Used For
VA business loans are provided solely for the purpose of enhancing the businesses of veterans who are strapped of cash in their businesses. These loans can be used for almost everything that relates to the acceptable business of the VA.
It can be used to add working capital into your business, cover start-up costs for a new business, purchase equipment, buy real estate for your business to occupy, buy inventory to sell, hire business management, expand your business, set up to sell goods and services to the government (contracting), set up your business for the possibility of your deployment, and recover from declared disasters such as hurricanes, tornadoes, and earthquakes.
How Much Can a Veteran Borrow?
The amount of money allowable to a veteran business depends, to some extent, on the lending institution they go through. You may qualify for a larger loan, but the SBA will only provide a guaranty for loans up to certain loan limits.
The SBA 7(a) program provides a guaranty of 85 percent of the amount borrowed up to a maximum of $150,000, or a 75-percent guaranty of the amount borrowed between $151,000 and $3.75 million. SBA Express loans receive a 50-percent guaranty.
VA Loans Credit Score Minimum
Most VA lenders make use of credit score benchmarks. Applicants with scores below a lender’s benchmark usually can’t be approved for VA financing. That minimum usually varies from lender to lender, but most VA-approved lenders, including Veterans United Home Loans, are looking for a credit score of at least 620.
Documents You are Required to Provide for a VA SBA Loan
To get a VA small business loan, you have to be able to prove that you were once a military personnel. You can only prove that by providing some documents to the SBA office, and they should be included with your loan application. Some of the documentation that would be required from you include;
- A copy of Form DD 214. This form is given to all military members other than those that are dishonorably discharged.
- Service-disabled veteran: Copy of Form DD 214. A service-disabled veteran can also provide documentation from the DVA stating that the veteran has been determined to have a service-connected disability.
- Transitioning active duty military member: DD Form 2 “U.S. Armed Forces Identification Card (Active)” or DD Form 2 “Armed Forces of the United States Geneva Conventions Identification Card (Active).” DD Form 2648 (Active Duty Military member) or DD Form 2648-1 (Reserve Component member) are also accepted.
- Reservists or National Guard
- DD Form 2 “Armed Forces of the United States Identification Card (Reserve).”
- Current spouse of veteran
- Evidence of status as a current spouse and veteran’s Form DD 214.
- Current spouse of transitioning active duty military member or current Reservist or National Guard member
- DD Form 1173 “Department of Defense Guard Reserve Family Member Identification Card” and evidence that you’re a current spouse.
- Widow of active duty service member who died in service or widowed spouse of veteran who died of a service connected disability
- Paperwork and documentation from the DOD or DVA proving your status as such.
Depending on which category you belong to, you’ll need to provide the proper documentation and paperwork proving that you are a veteran, current military member, or spouse of a veteran. In the event you have lost some of the forms required here, especially your Form DD 214, you are then required to submit a Certification of Military Service or NA Form 13038 instead.
Many of the above listed categories also require you to submit a photocopy of your military ID. If you don’t want to submit a copy of your military ID, you may submit a statement of service. A statement of service must be signed by or under the direction of the adjutant, personal office, or commander of the unit or higher headquarters you’re attached to.
Different military offices and branches use different forms, as there is no one statement of service. These statements are typically on military letterhead but can be printed from a computer. The statement of service must show:
- The service member’s full name
- The SSN or last 4 digits of SSN of the service member
- The entry date of active duty or reserve guard duty
- The duration of lost time for active duty
- The name of the person providing this information
For reservists and guard members, the statement of service must show that the applicant is “active” and not in a control group or inactive.