How Veterans Can Find Small Business Loans

Transitioning from military life to civilian life is hard enough. Add in starting up a small business, and it’s enough to drive you to seek help.

In this article, we’ll talk about the best funding sources for veteran-owned businesses plus a few more resources you can use. As with most government programs, the loan options for veterans can ebb and flow. We are currently in an ebb stage, but I’ll let you know where to keep updated if new options come out.

6 types of small business loans for veterans:

• Small Business Administration (SBA)
• Navy Federal Credit Union
• Military Reservist Economic Injury Disaster Loan Program (MREIDL)
• Hivers and Strivers
• StreetShares
• Plain old conventional loan

1. Small Business Administration

In the past, the SBA had loan options designed specifically for veteran-owned small businesses. You may remember names like SBA Veteran Advantage or SBA Patriot Express. These loan products are typically tacked onto SBA bills as they float through congress, but each has a timeline or dollar limit, and when it’s reached, the product goes away.

Keep up to date with the SBA website and start a relationship with a bank with SBA specialists. When I worked on SBA loans, we went to a few conferences a year run by NAAGL (National Association of Government Guaranteed Lenders) to keep up on all the new proposed SBA products.

Veteran-owned businesses (in this article, that generally means a business where a U.S. military veteran owns 51% or more of a business and works at least 40 hours per week to run it) can benefit from a fee waiver on SBA express loans.

SBA express loans were designed to provide working capital for startup businesses or small businesses that needed cash flow for expansion or a big purchase. Express loans can total up to $350,000 with a term of up to 10 years.

You may negotiate a lower rate, but in my experience, the rate will likely be the maximum allowed by the SBA, which is Prime + 2.75%, and that rate adjusts quarterly. You can find the current prime rate here.

SBA express loans to other borrowers have a 3% SBA guarantee fee, which is how the SBA keeps the doors open. That fee is waived for veteran-owned small businesses. And the lender you work with can charge a packaging fee of up to $2,500 or 1% of the loan amount, whichever is less. Many lenders will waive this fee as well for veteran-owned businesses.

If you are interested in an SBA loan, you can use the SBA’s lender match program. I would not recommend using this program, however. If you do, your information will be distributed to all SBA lenders in your area.

That list includes a lot of bottom feeders who have a hard time taking “No” for an answer. The better strategy would be to simply walk into your bank branch and ask to speak with a business loan officer. If you go to the bank where you already have deposits, you’ll have a leg up.

2. Navy Federal Credit Union

The Navy Federal Credit Union (NFCU) is a highly specialized credit union. Only veterans and those related to a veteran can join. As a credit union, NFCU has far fewer regulations and lower audit expenses than a traditional bank and can use that advantage to lower interest rates. And, it isn’t run for profit, so its goal is to provide the best rates it can.

If you need a business loan, visit the Navy Federal page and contact one of their experienced loan officers who may be a veteran with similar experiences.

3. Military Reservist Economic Injury Disaster Loan Program

The MREIDL program is the only direct option for service members on this list. Perhaps unsurprisingly, it is only available for a very narrow purpose. The program assists small businesses when a key employee is a military reservist and is called to active duty.

In that instance, the SBA will provide a loan (this isn’t a grant for veterans, it must be paid back with interest) of up to $2 million for the economic injury, as calculated by the SBA. The SBA will also determine whether your business can recover without this assistance, and if it can, your business is not eligible for the loan.

4. Hivers and Strivers

Hivers and Strivers is an angel investment group that focuses on small businesses owned by graduates of the U.S. military academies. Angel investors invest in the seed rounds of startup businesses. Often, this investment is pre-revenue. Hivers and Strivers usually invests between $250,000 and $1 million in a round. You can submit your business idea on the website linked above.

5. StreetShares

StreetShares was founded by two veterans to provide better options for businesses needing so-called hard money loans.

Hard money loans are made to businesses that can’t qualify for bank financing. They aren’t quite a loan that could end up with your legs getting broken, but if you’re getting a hard money loan, you may be heading in that direction.

StreetShares has two main products: term loans and lines of credit. The interest rates on loans here at the low end are about what you’d find on the high end for a traditional bank loan. Loan origination fees are three or four times higher.

StreetShares has its place in the lending economy. If your business is struggling, you can use them to get back on your feet. Just know you will need to pay for it. If your business is doing fine, go to the bank.

6. Plain old conventional loan

Our final option is the plain old conventional loan from the bank down the street. It’s a good idea to start a deposit relationship with the bank to gauge what you think of their service. Some banks may waive or reduce fees for veteran-owned businesses but don't count on it.

That doesn’t mean you should eschew conventional banks. If you build a good relationship with business bankers over time, you will see the same reduction in fees that you could get with veteran-advantaged loans from the government.

Business resources for veterans

Now that you’ve seen the sad state of veteran-focused loan programs, let’s take a look at what other resources you may take advantage of.

1. SBA

The SBA offers mentorship programs, success stories, and networking opportunities through its Veteran Business Outreach Centers.

You can find many training programs for veterans at the link above.

2. VA

The VA offers a Vets First program that allows your business to apply for government jobs with preferential bidding. Unfortunately, there is no such thing as a VA Business Loan. The VA assists veteran-owned small businesses by throwing them work instead of lending them money.

3. Service-disabled veteran-owned

I work for a service-disabled veteran-owned small business (SDVOSB). We are a general contractor that works mainly on VA jobs. The VA sets aside contracts for the Vets First program mentioned above, but many contracts can only be bid on by SDVOSBs.

This requirement can often limit bidding on jobs to only a few contractors, which can increase profits. Because the jobs are done in military hospitals or bases, the culture is one you grew used to in the service.

And both political parties support the programs that limit contract bidding for some jobs to SDVOSBs, so you could potentially have business into the future without worrying about government expenses being cut by a new president.

Go get a loan

In the military, you have to learn how to get things done independently. In small business, that may even be more true. Keep an eye out for new loan programs and do training if you think it will help, but mostly, be ready to rely on yourself and your employees.