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May 23rd, 2019

Business Loans for Veterans

Small Business Loans for Veterans

Veterans have all the tools they need to find success as small business owners. Discipline, focus, and the ability to set and achieve a goal. Did you know that the Play it Again Sports franchise was started by an Army veteran? Other businesses started by veterans include a tutoring service, a restaurant and hospitality business to pair veterans with employers, and Plated, the food delivery service, was the brainchild of a Marine veteran.

While veterans may have the skills and the ingenuity to start their own businesses, they will still need capital. In recognition of their service to our country, and their success rate, many lenders offer products specifically geared to help veterans succeed. You can also qualify for grants which do not have to be repaid.

Here are some resources designed to help veterans become successful business owners.

Small Business Administration Loans for Veterans

The Small Business Administration or SBA offers two programs for veterans. The SBA does not grant loans directly, instead they partner with approved lenders who offer the funding. More information on lenders in your area can be found at your local SBA Veteran’s Business Outreach Center.

The first, SBA Veterans Advantage, guarantees loans that are approved to business that have at least 51% ownership by a veteran. Because these loans are guaranteed by the government lenders are willing to work with riskier borrowers who have lower credit scores.

The second, The Military Reservist Economic Injury Disaster Loan Program (MREIDL), only helps small business owners if an essential employee is called to active duty in the Reserves or National Guard.

Veterans Business Fund

This non-profit exists to lend to veterans who need capital for their businesses. They offer loans which charge no interest and have favorable repayment terms. Only veterans can apply, but there is one other criteria you must meet. You must have applied for, and been rejected by, a bank for funding on the basis of insufficient equity.

For some small business owners, going through the process of applying for a bank loan only to be rejected, and on purpose in order to qualify for a VBF loan, can take a mental toll. If you need funds in a hurry, this will not be a good option for you. According to their website, they are not currently accepting applications.

Unsecured Business Loans

An unsecured business loan can be a good way for a veteran to secure funding for their business if they do not have collateral and require business funding. If you are new in business, you may not have assets or invoices to pledge as collateral. And if you’ve been in operation for less than two years, most traditional lenders won’t lend to you.

After years of service, with constant moving and possible tours abroad, your credit could have suffered.  Alternative lenders offer unsecured business loans to borrowers with credit scores as low as 500. Your business only has to have been operating for one year. You can get a loan for as little as $5,000 to get off the ground, or as high as $1 million, but you need minimum monthly revenues of $10,000.

Unsecured personal loans work for those whose life hasn’t followed the straight path that traditional lenders prefer. Often, they’ll ask for addresses for where you have lived in the past five years. Veterans and service members move frequently, and a patchy address history could go in their loan application file as a negative.

Short Term Business Loans

If you are just trying to launch a new business, or in the start-up early phase you may only need a loan for a short period of time. It does not make much sense to jump through a bank’s hoops to obtain a two-month loan. Alternative lenders offer short term business loans with terms as short as six months.

Rates range from 9% to 45%, and you must have a credit score above 650. The application process is quick, and you can be approved for a loan in just 24 hours. Funds could be deposited into your bank within a few days.

Some veteran-specific loans require massive amounts of paperwork and documentation that proves your service. When you have to request information from the VA the loan application process becomes even longer. The ease of a short-term loan could be just what you need to fund your business.

Bad Credit Business Loans

Unfortunately, veterans have more credit issues than non-veterans. While veterans are more likely to have three months of living expenses saved than non-veterans, which would support the argument that they do have financial management skills, the reality of moving often and being deployed on short notice can wreak havoc with credit.

You could miss a payment on a credit card, or be unable to find a bill, during a move. Another move could force you to sell a house when you are underwater on the mortgage. While you might be otherwise fiscally responsible, you could have poor credit. Which is why, if you are looking to obtain funding for a small business, you should look at bad credit business loans.

Bad credit business loans, most commonly offered by alternative lenders, have shorter terms to reduce their risks. The loan might have to be repaid in two to eighteen months. Rates reflect risk, and if you have poorer credit you are a higher risk. Therefore, bad credit business loans typically charge interest rates between 12 to 45%. But they will approve you for a loan with a credit score down to 500 as long as your monthly revenues are above $8,000.

Merchant Cash Advance

A merchant cash advance or MCA could help you obtain capital if you run a high volume of credit card sales through your business. An MCA advances you funds against future sales. You repay the advance as those future sales are swiped through your register.

To calculate how much they will lend you, the lender will request bank and credit card statements. Once they have verified how much money is coming into your business, they can calculate an average and advance you an amount based on it. While they might check your credit, the primary lending decision is made on the basis of your revenues.

For repayment, you do not have to worry about writing a monthly check or fitting it into your budget. The lender deducts a percentage of all future sales until both their principal has been repaid and their profit made. The interest rate, which represents their profit, starts at 15% and rises higher. Loan amounts start at $8,000.

If you are a female veteran, read more about resources specifically for women veterans. Shield Funding knows that the success rate for veteran-owned businesses is high, but that veterans could struggle obtaining capital through no fault of their own.

Dena Landon

Dena is a senior writer at Shield Funding, reporting on various topics related to small business loans and business financing. Previously her work has appeared on The Washington Post, Narrative.ly, Salon, and others. Her first novel was published by Dutton Children’s Publishing in 2005. She has a Master's in Business Administration from Capella University and has worked in the finance field for over fifteen years.
Dena Landon