How to Apply for a Veteran Business Loan
If you’re a veteran, how you apply for a small business loan is particularly important. Since veterans are provided certain federal support programs, you should consider your options carefully. In addition, how you go about choosing a loan will depend on numerous factors such as your business history, credit score, revenue, overall financial health, and other factors.
In this guide, we’ll explain everything that you should know as a veteran applying for a small business loan, as well as the specific things to should consider.
Everything You Need to Know About Applying for a Veteran Business Loan:
1. Understand the Challenges that Veteran-Owned Small Businesses Face
Despite the large number of small business owners that are veterans, overall, business ownership is down for veterans. Since 2001, only 4.5 percent of service members have started their own business. In comparison, almost half of the veterans of World War II started their own business.
In a report by Syracuse University, researchers concluded that access to capital was one of the biggest challenges for veteran entrepreneurs. Most veteran business owners agreed that lack of access to capital limited their ability to grow. At least part of the reason is that the current G.I. bill, unlike the previous one, doesn’t provide low-interest loans to start a business.
Veteran-owned small businesses make up an important part of the U.S. economy, but they also provide havens for returning veterans who benefit from working for someone that understands them. This makes it especially important for veterans to be aware of their financing options.
2. How to Apply for a Veteran Business Loan
As a veteran, you apply for a loan much like anyone else would. For a traditional term loan, you’ll need financial statements, a well-thought out business plan, and business documentation. If you’re interested in applying for an SBA loan, we’ll detail those steps below.
Veteran Loan Options from the SBA
It’s important to note that when you receive a loan backed by the SBA, the SBA won’t be lending you the money. Instead, you borrow from a bank, financial institution, or online lender that provides SBA-backed loans.
Also, keep in mind that qualifying for an SBA-backed loan will require good credit history and strong finances. SBA loans are meant for businesses that have exhausted other finance options. Therefore, if you haven’t applied elsewhere, you likely won’t qualify for their loans.
SBA.gov and The Office of Veterans Business Development provide an entrepreneurial training program for veterans. Through the program, you can learn the basics of entrepreneurship, like business financing. Plus, it includes tips on how to write a business plan.
The SBA also offers the SBA Veterans Advantage, which is only available to businesses that are 51 percent or more owned by an individual who is an active duty service member, veteran (that wasn’t dishonorably discharged), service disabled veteran, reservist, or national guard member.
It’s also important to note that spouses of the categories mentioned above also qualify for this type of financing, in addition to widowed spouses of service members who died while in service or of a service-caused condition.
Overall, the SBA Veterans Advantage program makes it much easier (and affordable) for veterans to obtain loans.
3. How to Choose the Right Type of Veteran Business Financing
While it does take some time and resources, applying for the loan is usually the easy part. Choosing a loan product that best fits your needs is trickier. Before you decide, you’ll need to consider what your business needs are. When it’s done right, small business financing will help you get what you need to take your business to the next level.
Before you take out a loan, you should decide what you need the money for.
For instance, do you need a safety net? Are you investing in equipment to start your business? Do you want to grow your existing business? The answers to these questions will determine the type of loan that’s the best fit for you.
You should also consider other types of financing, like business credit cards, merchant cash advances, invoice factoring, equipment financing, or a line of credit. There are many options that could be a fit besides a traditional small business loan.
As you evaluate loan options, remember to consider your own financial health. Regardless of the type of financing you’re interested in, a poor credit history and weak financials will make it difficult to get a good deal on a small business loan (with affordable interest rates). This is where alternate sources of funding may come in handy until you’ve built yourself up to a point from which you can qualify for a traditional loan.
Conclusion: Veteran Business Financing is a Resource Worth Pursuing
About 30 percent of veteran small business owners use savings for capital investments, and many of them would likely benefit from a small business loan. Of course, you don’t pay interest on your savings, so it may appear like the cheaper option.
In the long run, relying on your savings alone can stunt your business’s growth prospects.
If you look at it this way, you could see how, even though you aren’t paying interest on your savings, you’re losing out on potential growth. So, what’s more expensive? The interest on a small business loan? Or the lost opportunity to grow your business?
If the lost opportunity to grow your business is more expensive than the interest on your loan, then that small business loan may be much more affordable than you think.
Editor’s Note: This post was updated for accuracy and comprehensiveness in May 2019.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.