When United States veterans transition into civilian life, they do so with a host of skills and experiences that are highly valuable to the business community. Dedication, mission-focus and a sense of service are all characteristics most businesses look for in their employees, and they’re essential for veterans who wish to start businesses.

SBA loans for veterans are one of the primary tools for service members to start a business today, but veterans have a long history of entrepreneurialism.

In fact, 49.7 percent of all World War II veterans became entrepreneurs, as well as 40 percent of all Korean War veterans, according to a report in U.S. Veterans Magazine. But since the turn of the century, only a small fraction of veterans — about 4.5 percent — have launched their own company, according to the same report.

The lack of veteran small businesses is due in part to transformations in the economy, including the disappearance of America’s manufacturing base. But according to the same magazine article mentioned above, it’s also due to veterans’ severe lack of access to low-interest business loans.

Thankfully, the U.S. Department of Veterans Affairs (VA) and the Small Business Association (SBA) have teamed up to make loans available for veterans who might not otherwise be able to get financing for their businesses. They’re especially useful for veterans who have poor credit or a lack of credit.

What Is an SBA Loan?

The Small Business Association does not actually lend money. Instead, it acts as a guarantor for the loan to eliminate risk for the bank, financial institution or authorized SBA lender providing it.

This allows the financial institution to pass on some of the savings to the borrower by way of lower interest rates or other benefits. In many cases, this also opens the opportunity for borrowers to apply for an SBA loan when they may not qualify for a traditional one.

If the borrower cannot repay the loan, the SBA may step in to cover up to 85 percent of the loan’s amount for the financial institution (depending on the type of loan). This lowers risk for the financial institution, although the borrower is still responsible for repayment. SBA loan programs open lending opportunities to thousands of entrepreneurs who may be underserved, including veterans, minorities and entrepreneurs in underbanked areas.

SBA Loans for Veterans

The SBA loan programs provided to veterans are technically small business VA loans which are backed by the government. Although they’re similar to other types of small business loans, they take special provisions for veterans to make them more accessible and affordable.

Naturally, only U.S. military veterans and their spouses are qualified to apply for these loans, and they must provide specific documentation to do so.

Nonetheless, these types of loan programs provide not only business financing but also public and private business resources, such as counseling, to veteran entrepreneurs who wish to transition to self-employment or business ownership.

The SBA provides three types of VA loan programs:

  • The SBA Patriot Express Loan Program (now the SBA Express Loan Program)
  • The SBA Veterans Advantage Loan Program
  • The Military Reservist Economic Injury Disaster Loan (MREIDL) Program

The SBA Patriot Express Loan Program

The SBA 7(a) Loan Program began offering the Patriot Express Loan in 2007 as a way of increasing veterans’ access to business financing and speeding up their approval rates. Its streamlined process differentiated this loan. Although it technically ended in 2013, veterans can still access many of the same benefits through the SBA Express Loan Program, which is available to everyone.

Veterans can borrow up to $350,000 through the regular SBA Express Program with the same speed as the Patriot Express Program, which used to issue loans to veterans as high as $500,000. These loans also include SBA’s guaranty of 50 percent.

SBA Express Loans can be used for several different business purposes, not just to cover the cost of starting a business. For example, if you qualify, you can use this loan to expand your business, purchase new equipment, obtain working capital or purchase real-estate.

SBA Express Loans typically have low interest rates, but borrowers can negotiate them as well. Interest rates cannot exceed the maximum SBA interest loan rate, which ranges from 7.75 percent to 10.25 percent depending on the loan.

The SBA Veterans Advantage Loan Program

The SBA’s 7(a) Loan Program is available to both veterans and non-veterans. It typically comes with a 3 percent up-front guaranty fee for loans between $150,001 and $350,000. But for veterans who qualify for SBA Veterans Advantage, that fee is reduced to 0 percent for SBA Express Loans over $150,000.

The maximum you can borrow under this program is $350,000, but as a veteran, you wouldn’t have to pay any up-front fees to obtain the loan.

The Veterans Advantage Loan is available to the following military community members:

  • Veterans
  • Service-disabled veterans
  • Active-duty service members participating in the Transition Assistance Program
  • Current spouses of any of the above military community members
  • Widowed spouses of a service member or veteran who died during service or of a service-connected disability.

To qualify for this loan, you need to provide lenders with the following documentation, depending on your status:

  • Veteran Status: a copy of DD Form 214
  • Service-Disabled Veteran Status: a copy of DD Form 214 or documentation from the Department of Veterans Affairs
  • Transitioning Active Duty Military Member: DD Form 2, an Armed Forces Identification Card, DD Form 2648 or DD Form 2648-1
  • Reservists and National Guard Members: DD Form 2 or an Armed Forces Identification Card
  • Spouse of Veteran: Evidence of spousal status and the veteran’s Form DD 214
  • Spouse of Transitioning Active Duty Military Member or Current Reservist or National Guard Member: DD Form 1173, an Armed Forces Family Member Identification Card and evidence of spousal status.
  • Widowed Spouse of Active Duty Service Member or of Veteran who died of a service-connected disability: Appropriate documentation from the Department of Defense or from the Department of Veterans Affairs

The Military Reservist Economic Injury Disaster Loan (MREIDL) Program

When an essential employee is called for military service, it can place a burden upon the small business that depends on them. The purpose of the Military Reservist Economic Injury Disaster Loan (MREIDL) is to help small businesses meet their regular and necessary operating expenses should one of their employees be called for service.

These loans are not intended to replace profits. They can only be used for working capital. However, they’re available to both regular small businesses and small businesses owned by military veterans or active service members.

As these loans are taxpayer subsidized, they’re not available to small businesses which can fund their own recovery. The interest rate on these loans can be no more than 4 percent per year, with a maximum of 30 years of maturity.

Small businesses can borrow up to $2 million under this program.

Find Your Small Business VA Loan

There are other financial options beyond SBA loans for veterans. But even for those who have military service under their belt, navigating the world of small business financing can be a challenge.

You should always use discretion when taking on a loan. Be sure you understand the terms of your loan before signing any agreement. It’s also prudent to map out your repayment plan in advance. This will save you from any unpleasant surprises down the road.

If you need to offer up collateral to obtain your loan, it’s better to offer collateral you can afford to lose. If you need help assessing your options, don’t hesitate to reach out to a business loan specialist.