Veterans can leave service and feel as though they don’t know what to do with their lives. Starting a new business, following your dreams, and pursuing a different path can be a great way to use the skills they learned while on duty to make money, succeed financially, and make a life for themselves back at home.
But, securing enough funding to get a business up and running can be stressful. Instead of overspending or using all of your savings, applying for a VA business loan can help provide the initial capital to pay for the must-haves in any business.
Small Business Loans for Veterans
A VA business loan is one of the best business loans for veterans. Like other small business owners, veterans sometimes have difficulties gathering enough finances to get their company up and off the ground. Banks are signing off on fewer loans, making securing the capital to start an entrepreneurial adventure tougher.
The reason a VA loan is a better option than a regular loan is because there are no down payments, no mortgage requirements, and lower interest rates. Although the Veterans Administration does not administer this, it is typically called a ‘VA loan’ because the Small Business Administration and other groups provide business loans to vets and their relatives.
How To Get a VA Loan
For veterans, securing a small business loan can be quite simple. Although each lender has its own stipulations and requirements regarding how it will fund a veteran-owned business, the most common requirement is that the business must be 51% owned by one or more veterans.
In addition, to be eligible for the loan, individuals must be honorably discharged or service-disabled veterans, active-duty personnel participating in the Transition Assistance Program, a member of the National Guard, the spouse of a veteran, or a widowed spouse of a service member who died in the line of duty.
Once you verify that you meet the above criteria, applying for a VA business loan is the next step. Having a professional help you with the application process can be helpful, as it will require you to file business licenses and service histories.
In addition, you will need to file other documents, iincluding Form DD214, business plans, financial statements, tax returns, business ownership confirmation, and business certifications—a lender, such as the SBA, will check your credit history to see if you qualify for a loan.
How To Use VA Loans
Securing the loan for your business can help you get your company off the ground and start making a dent in your specific niche industry.
- Startup costs: VA loans can cover rent, utilities, employee salaries, and inventory.
- Operating expenses: Operating expenses and recurring expenses can include supplies, taxes, and subscriptions.
- Hiring employees: To run successfully, small and medium-sized businesses need employees. Loans help owners have the capital to hire more workers, pay fair wages, and add incentives/bonuses.
- Purchase equipment: Business owners may need to purchase new equipment, which adds assets for increased company value, and buy initial goods for the beginning of the inventory.
- Expansion: These loans can be used to expand and upgrade a new business, such as opening a second location to grow a consumer base or upgrading a website to increase e-commerce capabilities.
This type of small business loan is versatile to use for a variety of business expenses, one-time purchases, and recurring fees that can help your company run smoothly.
Best VA Loans for Small/Mid-Size Businesses
Now that you know how to apply for a VA business loan, it is time to determine what type of VA loan best suits your unique needs.
Veteran-Specific Financial Groups
Veteran-specific financial groups make it easier for veterans and other military members to secure the funds required to start and grow their companies.
Some of the most common financial groups include the US Cares Emergency Assistance Program, the American Legion Temporary Financial Assistance Program, Operation Family Fund, and the US Department of Veterans Affairs Aid & Attendance Assistance.
Traditional Institutions
Another method to secure capital is using a traditional financing institution, such as a credit union or typical bank. This is the most straightforward way to secure a loan for a new startup or entrepreneurial adventure, but it requires a solid credit score.
Entrepreneurs who are approved for a traditional loan can enjoy a low interest rate, low monthly installment payments, and better business credit. Owners who apply for this funding option must gather business information, tax verification, financial statements, collateral, and a detailed business plan.
Venture Capitalists
A third method of securing a VA business loan is to use venture capitalists or other types of investors. For those who have a solidified business plan with extremely high potential, you might be able to convince a wealthy venture capitalist to invest in your business through a loan.
This process is called debt financing, which gives the entrepreneur money at a pre-set interest rate without relinquishing business ownership. The venture capitalist can provide the new owner with connections, information, capital, and know-how of the business's beginning steps, as well as the opportunity to meet other owners for networking purposes.
However, the drawback of this type of business loan is that it is often more expensive than other types of VA loans. If the business owner cannot repay the loan on the pre-set schedule, it could lead to hefty penalties and fees depending on the nature of the contract.
Small Business Administration
Another common way to obtain a VA loan for a new business is to use the SBA, which offers various financing options for veterans. The SBA provides veterans-only loans, low interest rates, and the SBA Veterans Advantage Guaranteed Loans Program. For business owners who qualify for this program, they can obtain short-term loans up to $1 million with no upfront fees.
Other popular SBA financing options include:
- 7(a) small business loan program: This is the most common type of SBA and includes low collateral, long terms, and is only applicable for ‘small business’ companies.
- Microloans: Type of SBA loan for a startup that can use the funding for machinery, equipment, technology, payroll, supplies, or inventory.
Other Financing Options for Veterans
Veterans have other choices for starting their business instead of only using VA loans.
Invoice factoring provides your business with cash in hand quickly by saving time that you would use to get unpaid invoices from clients. Requires a considerable portion of your revenue to apply.
Working capital loans offer either short or long-term availability, covering overhead and operating expenses. They are easy to secure for those who are worried about getting accepted for more ‘traditional’ loans.
Angel Investors are individuals with private money to invest in a company with the expectation of equity in the future. Many angel investors firmly believe in the business they invest in and often require 10-50% of equity in the new business.
Merchant cash advances are a kind of VA business loan that is fast, easy, and safe but extremely expensive (upwards of 200% APRs). A merchant cash advance is funded by the purchases of future card sales and offers a daily or weekly percentage of card sales for the repayment to the funder.
Business lines of credit mean the owner only has to pay interest on the part of credit that they use; interest is accrued as credit is used. This type of funding is available from bank and non-bank lenders.
Crowdfunding is a helpful tool for those who have an inspirational business idea and a wide social network. Owners can create an engaging and exciting marketing campaign that asks for money from friends, family, and loved ones.
Selling equity involves selling part of the company to an investor who can fund your operations. However, this requires forfeiting a percentage of your business and equity.
Benefits of VA Business Loans for Small/Mid-Level Companies
VA loans for small and mid-level companies are crucial to starting on the right foot. By securing capital and getting your business off the ground, you can focus on what matters — your customers.
One of the main benefits of securing a business loan for a new small-sized company is obtaining capital. Accessing capital early on in forming your business means you can quickly grow your business. Small business owners can open new locations to expand and reach a new target market, invest in new equipment to expedite their operations, or change processes to meet the growing consumer demands.
Secondly, loans provide a consistent amount of money into your business account for secure, predictable, and even funding, even during slow periods. For example, term loans are a predetermined time frame that provide consistent funding at a fixed or variable interest rate with an agreed-upon repayment schedule.
In addition, you can create a stable line of credit. Repaying business loans builds your company’s credit history, which can lead to various financing options when wanting to expand.
Furthermore, entrepreneurs will be able to receive tax benefits from specific types of loans. Interest on VA loans is tax-deductible, reducing the business's tax liability through the pay-off process.
The last perk of using a VA loan for a small or mid-sized business is that new owners can access expert knowledge even though they are new to the industry. The finance professionals who lend the money, including traditional institutions, SBA, or venture capitalists, will be able to provide critical insights into starting a business, risk management, employee management, and growth strategies.
Fund Your Entrepreneurial Idea With a VA Business Loan
For new business owners who want to start their own company, pursue entrepreneurial endeavors, and reach a niche target market, it can be hard to make their dream a reality due to a lack of funding. That is where VA loans come in—securing capital for your business through veteran funding programs is a smart way to finance your unique idea.
Not sure where to get started? Apply for a VA loan with us today to get started with this new phase of your life. Veterans Programs, non-traditional financing options, and VA business loans make it possible to start a new company without spending all your savings.
