Veteran small business owners are a strong community of achievers with a background in determined hard work. It’s no wonder so many veterans shift into starting and running a business when they rejoin civilian life. However, while time spent as an active duty service member can be an advantage when dealing with the demands of day-to-day business operations, it can also impede veteran business owners’ chances of obtaining business financing – with service-related gaps in financial history making it more challenging (and more complicated) for veterans to get business loans than their non-military counterparts. There are still great options out there, though.  It just may take a little more time and a little more paperwork to put your hands on some funds.  Let’s explore the most popular loan options for veteran small business owners.

Small Business Loan Options for Veterans

Veteran entrepreneurs can choose from a large selection of business loans and financing options provided by traditional banks and alternative lenders, along with loans that are backed by the federal government through the Small Business Administration (SBA).  Loan options vary by lender and will have their own set requirements laid forth by each lender. Depending on your specific situation, one loan type will likely serve you better than another so fully researching each option to select the best financing for your business is critical.

Personal Loans for Veteran-owned Businesses

Let’s begin with one that you may not expect: It is more than possible to take out a personal loan to boost your small business. While business loans are frequently based on the overall financial standings of your enterprise itself, the terms of personal loans will be based on your personal creditworthiness and financial health. Using personal loans for your business, however, has its own set of rules and considerations.

Pros of Using a Personal Loan for Your Business

• While there are options for secured personal loans, the majority typically do not require collateral, which means you’re less likely to be risking any of your personal assets to finance your business with this option.
• For new and very small businesses, it can be much easier to qualify for a personal loan than a traditional business loan.  In addition, you can use the funds from your personal loan for virtually any expense.
• You can get access to funds quickly – usually within a few days after you are approved, though some personal loans offer same-day funding.   And personal loans typically come with very reasonable terms, ranging anywhere from two to seven years (though some lenders will go out as far as 10-12 years for much larger personal loans.)

Cons of Using a Personal Loan for Your Business

• You will have access to less money with a personal loan.  In rare situations, some lenders do offer personal loans up to $100,000; but, typically, most lenders will only go up to $50,000 for very qualified candidates.
• APRs tend to be much higher with personal loans, with the average being about 11.05% in 2023, according to Bankrate.  In addition, interest on a personal loan isn’t tax-deductible, unlike interest paid on a business loan.
• Regardless of whether you go for a secured or unsecured personal loan, you will be putting your personal credit on the line.  If you do opt for a secured loan, you will also be putting personal assets at risk if you are unable to pay the loan.

Taking all of the positives and negatives into account, veteran business owners should be cautious when they decide to leverage a personal loan for business use.  The scenario is best applied for new or very, very small businesses that aren’t likely to be approved for business-specific financing.

Loans from Family & Friends

Depending on your circumstances, taking out a loan directly from friends or family may be one of the best options available to small businesses – especially startups. While traditional financing will uniformly lay out terms and conditions (with the expectation of prompt payment), loaning money on a personal level requires a level of trust and understanding between both parties that extends beyond a pen-and-paper contract.

Pros of Friends & Family Loans

• Friends & Family loans can be much more affordable for business owners, as individuals with this personal relationship often won’t charge as much in interest. In fact, they can waive interest overall for other benefits, such as a stake in ownership, royalties/revenue share, or even a lifetime discount for your products.
• This type of loan also has the potential to add more flexibility than “official” lenders.  If you need to delay payment or you want to pay off the loan early, friends and family are more accommodating and less likely to charge you additional fees for these types of scenarios.
• These loans are a particularly great option for veterans who have a limited credit history that precludes them from accessing financing elsewhere.

Cons of Friends & Family Loans

• You’re making business personal which could negatively impact your relationships.  Missed payments, disputes over a loan agreement, or a sense of general awkwardness if your business isn’t making money as quickly as you’d hoped, could all lead to a damaged personal relationship.
• While these loans are great options for those with limited credit, they can also be a detriment to your credit profile since they will not be helping you to build or improve your credit standing – which is something that you will need if you want to get more financing from a traditional lender down the line.

Like personal loans, friends and family loans can be a great option for new and very small businesses.   They can also be a viable loan option for business owners with limited or bad credit. However, make sure you have a strong agreement – that both parties are happy with – in place to help insulate your relationship from any potential damage.

Term Loans

Term loans are what most business owners think of when they hear the word “business loan”.Term loans are one of the most straightforward ways to get a lump sum of working capital for your small business.  Interest rates on military business loans like these can be fixed or floating and they are available as both short-term and long-term loans. Business term loans can be used for virtually any business purpose, but some lenders do have restrictions on how you use the funds.

Pros of Using a Term Loan for Your Business

• With business term loans you don’t have to give away any ownership of your business to get access to funds like you would with some other types of financing
• There are many types of business loans available so finding one to suit your exact needs and business situation is relatively easy so long as you qualify.
• Unlike other kinds of financing, interest payable on a term loan is sometimes tax deductible. You should always check with your accountant prior to signing a loan contract to determine if you can take advantage of this tax deduction.

Cons of Using a Term Loan for Your Business

• Business term loans tend to have stricter requirements than other types of business financing (especially when it comes to credit scores) and they typically require quite a bit of paperwork – from bank statements and tax returns to financial statements and a business plan
• If you own a newer or very small business, term loans typically aren’t a great option as it can be difficult to meet business and revenue qualifications set by lenders.
• If you need money quickly, you may want to consider other financing options.  Business loans tend to take longer – from several days to several weeks – to get a decision on whether or not you were approved.  In addition, once you are approved, it can take another several days to weeks to get the funds in your account.

SBA Loans

For honorably discharged veterans, service disabled veterans, active duty military members who are eligible for the TAP program, active reservists, and National Guard members, the SBA formerly offered loan programs designed to help you get access to the capital you need to start, grow and manage your business. These programs are no longer active and the SBA has not commented on whether or not they plan to restore them the future.

SBA 7(a) Loan

7(a) loans are the most well-known and the most common type of SBA loans, which actually represent an entire class of loans with limited fees, capped interest rates, and a partial guarantee of the total capital offered in the loan. Standard 7(a) loans can offer up to $5 million in capital.  The terms of a 7(a) loan are typically determined by your use of the funds.  For example, if you plan to use the loan for real estate, terms can go out as far as 25 years but if you plan to use the loan to purchase equipment, for example, terms are capped at 10 years.

Under the Veteran’s Advantage program guaranty fees for standard 7(a) loans were discounted by 50%. This program ended in 2018.

SBA Express Loans for Veterans

SBA Express loans are a type of 7(a) loan that boasts an accelerated review turn time of 36 hours by the SBA.  These loans can go up to $500,000 and have terms that can extend up to 10 years.  Under the Veteran’s Advantage Program, your up-front guaranty fee for an express loan is 0%. This program also ended in 2018.

SBA Microloans

SBA microloans are only offered up to $50,000 and are generally considered the best option for veteran small businesses still in the early stages of business. According to the SBA, interest rates will always depend on the intermediary lender, but generally range from 8 to 13 percent. Further, the maximum repayment term possible is six years.

Military Reservist Economic Injury Disaster Loan (MREIDL)

While not specifically for veterans, this is a helpful loan if you have an essential employee who is a reservist that was called up to active duty.  MREIDLs provide funds to assist eligible small businesses to meet their ordinary and necessary operating expenses that have been severely impacted due to the absence of the now-active reservist employee.  Loan amounts can go up to $2 Million, but the actual amount will be determined based on SBA calculations of the actual economic injury to the business.

Pros of SBA Loans for Veterans

• SBA loans tend to be the most cost-friendly loans available to all small business owners.  They were formerly even more so for Veterans through the Veteran’s Advantage Program fee reductions.
• There is a variety of loan types that are backed by the SBA that come with favorable interest rates and longer payment terms making it easy to find a loan that can fit your current business needs

Cons of SBA Loans for Veterans

• There is a ton of paperwork involved when applying for an SBA loan and there are many strict requirements for qualification, including the fact that you need to exhaust all other forms of financing first.  In addition, collateral may be required for approval.
• While there are a variety of loans available, you are limited on how you can use the funds based on each loan type.  It’s important that you nail down exactly how you plan to use your funding to ensure that you apply for the appropriate type of SBA loan.

Who Qualifies for a Veteran Small Business Loan?

To qualify for a loan under the SBA’s Veterans Advantage Guaranteed Loans program, at least 51% of the small business applying must be owned by:

• an honorably discharged veteran
• an active service member who is eligible for the military TAP Program
• a service-disabled veteran
• a reservist
• National Guard members
• the current spouse of a veteran, active duty service member or National Guard Member
• widowed spouse of a soldier who died in the line of duty or as the result of an injury connected to their service
• Business loan eligibility depends on multiple factors including business credit score and average annual revenue

Businesses will also be required to meet minimum qualifications including credit score, annual revenue, and time in business.

How to Get a Small Business Loan for Veterans

Getting a business loan can be a complex and time-consuming process.  Each lender and each loan type comes with its own requirements, risks, and rewards so it’s important for you to do extensive research before even applying. From understanding your own business needs to breaking down the total cost of financing for each loan type, there are multiple steps you should take when going through the process of getting a business loan.

Step 1: Determine your financing needs

First, look at your business’s financial requirements to determine how much financing you need.  Outline the purpose of the loan, making sure to consider working capital, equipment purchases or other planned growth. Not only is this often required during your application, but it also shows lenders that you’ve done your due diligence.

Step 2: Choose the best loan program for your business

Compare loans available to veterans and choose the option that fits your business and needs best. Double check terms, interest rates, loan amounts, and application requirements

Step 3: Gather the necessary documents

During the application process, you’ll be asked to submit information about your, along with details on your veteran status. Application requirements will vary but be prepared to provide at least the following:

• proof of veteran status
• at least three recent business bank statements
• both personal and business financial statements
• a business plan
• recent tax returns.

Step 4: Apply

Once you’ve determined which small business loan program is best for your business, it’s time to fill out and submit your application.  Next, wait to hear back from your lender to find out if you’ve been approved.

Additional Financing Options for Veteran Business Owners

While there are several great veteran business loan programs out there, loans luckily aren’t the only financing option available for veterans.  Here are some alternative financing options that veterans should consider based on their needs:

Revenue-Based Financing

Revenue-based financing is a type of financing that allows businesses access to working capital through a pre-purchase of future revenue. Essentially, a financing partner or lender will provide you with a lump sum of cash based on expected future sales.  You “sell” this future revenue at a discounted rate to get money to run your business today.  This is a short-term type of financing with terms averaging around 6-12 months.  Payments are typically made daily, though some lenders allow for weekly or monthly payments and payment amounts are based on a pre-determined percentage of that day’s revenue.  This percentage is fixed, so if you make less in sales on any given day, your payment to your lender will be less that day.  If you make more sales, your daily payment is larger.

Equipment Financing & Leasing

If you’re looking for financing to add or upgrade business equipment, equipment financing or leasing may be the way to go.  Depending on the lender you choose, you may be able to finance 100% of the cost of the equipment and the asset that you are purchasing typically acts as collateral.

Business Line of Credit

A line of credit is one of the most flexible forms of financing available to small business owners. This revolving form of financing allows you to draw on funds when needed and you only pay interest on the amount you use.  Businesses can draw and repay multiple times throughout the term of the line. Lines of credit tend to suit the veteran business owner either looking to keep more working capital on hand during slow seasons or those who are expecting a repeating and predictable expense that would make too large of a dent in available cash flow.

Alternative Financial Resources for Veterans

If formal financing arrangements aren’t in the cards for you right now, there are still several great ways for veteran small business owners to connect with the capital they need.

Grants for Veteran-owned Businesses

There is a robust collection of organizations that offer grants specifically for veteran business owners, like the Military Entrepreneur Challenge and the Texas Woman’s University Veteran Woman Entrepreneur Grant.  Beyond simply offering grants, several of these organizations offer additional resources for veterans, doubling as mentorship organizations and offering a great community for the veterans who join up. And at that, many also have connections for picking government contracting work or special resources for disabled veterans.

Crowdfunding

Americans love their troops and any veteran business owner with an interesting business plan or a charismatic screen presence ought to consider bringing their business to crowdfunding.  Crowdfunding is a way to raise capital for your business by tapping into your extended network, whether that be family, friends, customers, and/or individual investors. There are two primary forms of crowdfunding – rewards (where you offer something non-money related to those who contribute money) and equity (where you offer equity in your business in exchange for monetary contributions).  While the main purpose of crowdfunding is to raise capital, there are additional benefits as well including brand awareness, growing your customer base, and potential partnerships.

Business Credit Cards

A business credit card is a great resource, especially for filling small gaps in your operations or giving yourself a small cushion for your working capital. When choosing a business credit card, however, be certain to weigh as many options as possible as the sign-on deal of your card is likely the most lucrative benefit you can take advantage of.

Veteran Business Loan FAQs

Does the VA offer small business loans?

No, the Department of Veterans Affairs (VA) does not offer business loans.  However, there are many small business financing options available to veterans, including SBA loans, term loans and personal loans.

How much can a veteran borrow through a small business loan?

Small business loan amounts for veterans can vary depending on the type of business, annual revenue, and both business and personal credit scores. Many loans also set limits on how much any applicant can borrow, including veterans.  Review different financing options to find one that meets the needs of your small business.