Guide to Small Business Loans for Veterans

Learn about the business funding options for Veterans.

Stacks of cash in neat rows next to a stack of U.S. flag patches

Leaving the battlefield and heading back to civilian life is a difficult transition for even the most composed veterans. After risking their lives to protect our freedoms, many veterans have a difficult time adjusting to ordinary jobs. Instead of taking orders from someone else, many of these individuals pursue entrepreneurial endeavors, hoping to build and grow businesses of their own.

According to the Small Business Administration (SBA), nearly two million businesses are owned by veterans of the U.S. armed forces. Collectively, veteran-owned businesses haul in $1.3 trillion in revenue each year and employ approximately 5 million people.

Veterans own businesses in all industries, including:

  • Finance and insurance
  • Transportation and warehousing
  • Mining, quarrying, oil, and gas
  • Construction
  • Professional, scientific, and technical services
  • Manufacturing
  • Wholesale trade
  • Agriculture, forestry, and fishing
  • Utilities
  • Real estate

Like all other small business owners, veterans who decide to open their own companies need to figure out how to finance their operations. For the most part, veterans opt to finance their businesses out of their own pockets. According to the SBA, 59.4% of veteran business owners start their companies with personal or family savings, compared to 57.3% of all business owners who do the same.

Not every veteran has enough personal capital to start their own business, however. To this end, 7.8% of veterans use loans from banks or other financial lenders while 7.5% of them put startup expenses on their own credit cards.

Instead of financing their businesses out of their own reserves or enduring the often arduous process of applying for a traditional bank loan—and, more often than not, being rejected—many veteran small business owners opt to seek alternative sources of financing. In some cases, they’re able to secure VA loans through the Small Business Administration.

What is a VA loan? What types of loans are specifically available to veterans?

Like all other small business owners, veteran entrepreneurs have had a hard time securing financing for their companies in recent years because banks have tightened their lending standards, signing off on fewer loans since the 2008-2009 financial crash.

Having dedicated their lives to preserving our way of life, veterans certainly deserve to achieve their dreams. To this end, the federal government and several pro-veteran groups have emerged to ensure that vets can get the funds they need to build and expand their businesses.

While they’re not administered by the Veterans Administration (VA), loans earmarked specifically for veterans are commonly referred to as VA loans. Most commonly, the SBA and other pro-veteran groups offer business loans to veterans and their families.

If you’re a veteran who’s wondering whether you qualify for a VA business loan, keep reading to learn whether you meet the requirements.

Who is eligible to receive a VA loan?

How exactly do you go about securing veteran small business loans in the first place?

Generally speaking, each lender will consider a slightly different set of requirements before deciding whether or not to fund a veteran-owned business. Before applying for a VA loan, do your due diligence to find out exactly what each lender expects.

For the most part, however, to be eligible for a VA business loan, businesses must be at least 51% owned and controlled by one of the following:

  • An honorably discharged veteran
  • A service-disabled veteran
  • An active-duty military member participating in the military Transition Assistance Program
  • A reservist or member of the National Guard
  • A spouse of any of the above
  • A widowed spouse of service member who died in the line of duty or from injuries sustained as a result of their service

Does your small business meet any of the above criteria? If so, you may qualify for a VA business loan.

How do you apply for a VA loan?

Like most other kinds of small business financing, those who are eligible for VA business loans will need to gather and submit several documents with their application. In addition to the usual types of documentation—like business plans, financial statements, tax information, general business ownership information, and any relevant business licenses or certifications (if relevant)—veterans and their families also need to produce the specific forms that prove service histories:

  • Veterans need to provide a copy of Form DD 214.
  • Service-disabled veterans need to provide a copy of Form DD 214 or documentation confirming they have a service-related disability.
  • Transitioning active duty members need to provide 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)” and DD Form 2648 (active duty military) or DD Form 2648-1 (reservist).
  • Reservists and National Guard members need to provide DD Form 2, “Armed Forces of the United States Identification Card (Reserve)”.
  • Current spouses of veterans need to provide the veteran’s Form DD 214 and evidence they are the current spouse of a veteran.
  • Current spouses of transitioning active members of current reservists/National Guard members need to provide DD Form 1173, a Department of Defense Guard Reserve Family Member Identification Card and evidence they are the current spouse.
  • Widows of those who died in the line of duty or from injuries sustained while serving need to provide documentation from the Department of Defense or the Department of Veterans Affairs proving that’s the case .

If Form DD 214 isn’t available for whatever reason, NA Form 13038 can be used as substitute documentation.

Once you’ve submitted all relevant files and information, the VA lender—like most traditional lenders—will likely pull your personal credit report to determine your creditworthiness. Unfortunately, this inquiry can hurt your credit score, making it that much harder to get funded in the event the VA lender doesn’t approve your application.

How can you use the funds from a VA business loan?

Great news: Your veteran business loan application was approved. How exactly can you put your new funds to use?

Versatile by design, VA loans can be used to do many things, including:

  • Cover Startup Costs

    While many veterans bankroll their business’ startup costs, not everyone is blessed with deep personal financial reserves. You can use funds from a VA loan to cover the expenses you’ll incur while establishing your business (e.g., business incorporation, rent, utilities, supplies, salaries, inventory, and marketing).

  • Pay Operating Expenses

    Once your business is rolling, use your VA loan to cover your recurring monthly expenses (e.g., accounting software subscriptions, office supplies, utilities, and taxes).

  • Hire Employees

    You can’t continue to grow your business by yourself forever. With VA loan financing, you can hire more workers and pay them fair salaries to keep them happy and engaged.

  • Buy Property or Equipment

    Are you sick of paying rent every month? Are you still relying on old tools when there are game-changing alternatives available? With money from a veteran business loan in the bank, you can buy new equipment or property—adding assets to your balance sheet and making your business more competitive.

  • Procure Inventory and Supplies

    Retailers and manufacturers need inventory and supplies to generate revenue. When cash is tight, it can be difficult to find the funds needed to procure these items. A VA loan, on the other hand, gives you the cash you need to get the goods your customers want.

  • Open An Additional Location

    Whether you’re a restaurateur, a landscaper, or a retailer, you can also use a VA loan to open a second location to expand the market you’re trying to address and grow your customer base.

  • Remodel Your Retail Storefront or Restaurant

    When’s the last time you’ve given the interior of your storefront or restaurant a facelift? Use a veteran business loan to modernize your establishment and attract new customers.

  • Build a Website

    In the age of the mobile device, it’s more important than ever for your small business to have a modern, responsive website. If a customer can’t find your business online, they might think you’ve shut your doors for good. Use a VA loan to create a business website that markets your company 24 hours a day. If it makes sense to implement e-commerce capabilities, you can sell to customers around the clock—even when you’re sound asleep.

  • Invest in Marketing Outreach

    Customers won’t flock to your business if they aren’t aware it exists in the first place. To this end, use your VA loan to market your company. Create and promote content for your website, send out coupons in the mail, and consider buying ads in the local newspaper.

Unlike other kinds of loans that must be invested in very specific ways, VA loans offer businesses more flexibility. As a result, veteran entrepreneurs can usually use the funds they receive in whatever way they think will help their businesses the most.

What are the best small business loans for veterans?

There are a number of financing options available to small business owners who are veterans.

Let’s take a look at six of them:

  • Loans From Veteran-Focused Funding Firms

    In recent years, several veteran-specific financial groups have emerged to help make it easier for members of the military to get the funds they need to grow their businesses.

    For example, Hivers and Strivers, is an angel investing firm that funds early-stage companies founded by folks who’ve graduated from the United States Military Academy, Naval Academy, Air Force Academy, Coast Guard Academy, or Merchant Marine Academy. The company generally gives new businesses between $250,000–$1 million in each round of financing. In exchange for equity, the company offers guidance, advisory support, and expertise to help companies in their portfolio grow.

    There's also the Streetshares Foundation. In addition to short-term loans, the foundation offers monthly grants and loans for veteran-owned businesses (or ones run by their spouses), prioritizing businesses based on their social impact and the strength of their business idea.

    Bunker Labs is a nonprofit organization that provides access to a national network of veteran and milspouse entrepreneurs dedicated to helping veterans and others in their transitioning military community start their own business.

    While these kinds of organizations are great for veterans, it may be tricky to secure financing through them due to their competitive nature. Keep that in mind as you search for small business loans.

    Loans From Traditional Financial Institutions

    If you’re feeling lucky and you have a solid credit score, you may be able to secure financing through a traditional banking institution or credit union. Large banks approve SBA loans at rates as low as 20-30%, but smaller banks approve small business loans at around 40% or less. Still, that doesn’t mean you have no chance at being one of the fortunate ones.

    On the plus side, if you’re approved, you’ll get the money you need to grow your business at a low interest rate. You’ll know exactly how much you’re expected to repay. Over time, as you make your monthly installment payments, you’ll build up your business credit.

    If you choose this route, get ready to spend a lot of time collecting documentation you need to apply (e.g., business information, tax information, financial statements, a business plan, and more). You also might have to wait as long as two or three months before financing finally comes through. In most cases, you’ll have to put up collateral to receive a loan from a bank so that in the event you’re unable to repay, the bank can sell your collateral to recoup their costs.

  • Debt Financing From Venture Capitalists and Other Investors

    If you have a solid business, you may be able to convince a venture capitalist to give your business a loan through a process known as debt financing. The VC gives you the money you need at an agreed-upon interest rate—and, unlike equity financing, you don’t have to give up any ownership stake in your business.

    Debt financing enables you to get the money you need from a financier who almost certainly knows how to run successful businesses and has a lot of connections that you’ll be able to tap into. The interest you pay on your debt can most likely be deducted from your taxes, lowering your borrowing costs. Once you’ve repaid the debt in full, you can end your relationship with the investor without worrying about that individual trying to claim a slice of your future profits.

    This form of small business funding, however, tends to be more expensive than other kinds of loans. If you’re unable to repay the loan on time, you may be hit with additional penalties depending on the language in your contract. Even if you’re able to repay your debts on time, it may be hard to grow your business because you can’t invest your revenues into your own operations; money’s sent to the investor instead. Finally, finding the right venture capitalist will almost always be an incredibly time-consuming and arduous process.

  • Loans from the Small Business Administration

    The SBA offers several small business financing options, some of which are only available to veterans. According to SBA data, 73% of the loans they give to vets are $350,000 or less.

    Unfortunately, the popular Patriot Express Loan Program—which provided veteran entrepreneurs with up to $500,000 with interest rates 2.25%–4.75% above the prime rate—was discontinued in 2013. But the Small Business Administration still offer financing to companies owned by veterans through the SBA Express program, which is available to all small business owners.

    There are also some veterans-only loans. For example, the Military Reservist Economic Injury Disaster Loan (MREIDL) is available to military reservists whose businesses were unable to meet its financial goals because an essential employee was called up to active duty. This loan serves as a temporary source of financing to cover operating expenses until the reservist is released by the military. Small business owners can apply for this kind of financing on the day they receive their call-up notice and until one year after they’ve been discharged from active duty.

    Veterans pursuing this form of financing can receive up to $2 million with interest rates of 4% or less. While the terms of these loans can last as long as 30 years, businesses are usually expected to repay them as soon as they can. In order to secure more than $50,000 through this program, borrowers are expected to put up collateral. For more information, head over to the SBA’s website.

    The government also offers SBA Veterans Advantage Guaranteed Loans, Under this program, veteran-owned businesses can get 7(a) short-term loans of under 12 months of up to $1 million with no upfront fees. To qualify for this kind of funding, at least 51% of a small business must be owned by an honorably discharged veteran; an active service member eligible for the military Transition Assistance Program; service-disabled veterans; reservists and National Guard members; the current spouse of a veteran, active duty service member, or National Guard member; or the widowed spouse of a soldier who died in the line of duty or as the result of a service-connected injury.

    While you may be able to secure funds through the SBA, be warned that the process is often time-consuming. If you need cash right away, you may want to consider another financing option.

If none of these veteran business loan options sound good for your company, there are several other financial vehicles to consider.

What are some other financing options for veterans who are business owners?

When it comes to financing their businesses, veterans have several other options besides applying for loans or other similar kinds of financing.

Here are five of them:

  • Invoice factoring

    If your business has a lot of unpaid invoices, you can sell them at a discount to an invoice factoring company. This gives you fast cash and saves you the time you’d spend trying to track down money from your clients. To enjoy those benefits, you’ll have to forego a significant chunk of your revenues—perhaps more than 20%. Since the invoice factoring company owns your invoices, they’ll collect payments directly from your customers, which could tip them off to your cash woes.

  • Merchant cash advances

    Does your business process a lot of credit card transactions? If so, you may stand to benefit from merchant cash advances (MCAs). Here’s how it works: Let’s say you need $50,000 and an MCA lender agrees to finance you. Once you’re given the money, the MCA lender would then take a slice of your company’s credit card receipts every day (e.g., 10%) until the advance, plus fees, are repaid in full. While MCAs are usually very quick and easy to secure, they’re one of the most expensive forms of financing. Annual percentage rates can run as high as 200%!

  • Business lines of credit

    If you’re having cash flow problems, you may be able to solve them by securing a business line of credit.

    Unlike other forms of financing, you don’t have to pay interest on the full sum you borrow when you secure a business line of credit. Instead, you pay interest only on the portion of the credit you actually use.

    The process for applying and getting a line of credit varies depending on which firm you work with, but the internet and AI technology have combined to dramatically speed it up in recent years. If you choose this route, do your due diligence and read the fine print to make sure you partner with the lender that’s right for your specific situation.

  • Crowdfunding

    If you put together an engaging campaign, you could secure the money you need though crowdfunding on sites like Indiegogo and Kickstarter. This method of financing works great for companies that are building products or creating services—but, generally speaking, isn’t for the accountants and landscapers of the world. If you’re willing to put in the time and money needed to produce a successful campaign, crowdfunding may help you finance products without having to put down your own money. You just need to make sure you’re able to follow through on your promises. On the flip side, if your campaign doesn’t succeed, you may end up investing a lot of time and money with only unfavorable PR and embarrassment to show for it.

  • Selling equity in your company

    If debt financing isn’t appealing, you could always opt to sell equity to an investor instead. In exchange for a slice of ownership, you’ll get money that you won’t have to repay. You’ll also get to leverage the investor’s expertise and connections; that individual will want a return on their capital, after all. Selling equity, however, means you no longer have complete control over your operations. You’ll have to forego a percentage of profits, too.

What grants are available for veteran-owned businesses?

There are many grants available to entrepreneurs. As a veteran, you may be eligible for grants that other small business owners aren’t.

Still, only a small percentage of veteran-owned businesses are successful in their attempts to secure grant financing to start or expand their operations. That being the case, it might not make a whole lot of sense to invest your time and energy applying for grants you are unlikely to receive.

In the event you do win a grant, though, you get funding with no strings attached. Depending on the specific grant, you may be eligible to win the award the following year, too. However, this kind of financing—while nice to have—shouldn’t be considered a reliable source of capital over the long term.

Grants for veterans come and go. Currently, the StreetShares Foundation offers three awards—$5,000, $3,000 and $2,000—to veteran-owned small businesses each year, for example. The U.S. government offers a variety of grants for veterans, too. Search this database to find out which ones are currently active.

For even more grants available for veterans, check this out.

Want to Learn More About VA Loans and Financing?

Need some additional help? Not a problem. There are tons of resources and professional organizations available to help veterans and their families build and grow successful businesses.

Here are some of the top sources you can turn to for more information:

  • Small Business Development Centers. The SBA has a network of Small Business Development Centers that offer no-cost advisory services and low-cost training assistance to small business owners. The goal of these centers is to help all populations—including veterans—grow their businesses.
  • The Office of Veterans Business Development. The SBA also has an office explicitly dedicated to helping veterans learn what it takes to run a small business.
  • The Office of Small & Disadvantaged Business Utilization. The Department of Veterans Affairs has curated all kinds of helpful business resources in the Veteran Entrepreneur Portal.
  • Veterans Business Outreach Center. Located around the country, the Veterans Business Outreach Center helps transitioning members of the military and their families start, grow, and even buy a business.
  • Vocational Rehabilitation and Employment. This VA program provides resources that can help veterans transition back into civilian life, including benefits information and business resources.
  • VetNet. Need help learning the ropes of what it takes to be an entrepreneur? VetNet—a platform that helps veterans with their careers—can help.

Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.