When U.S. military veterans transition to civilian life, they bring a host of skills and experiences that are highly valuable to the business community.
Indeed, U.S. veterans have a long history of entrepreneurism. Small Business Administration (SBA) loans have been one of the primary tools for service members to start or fund a business.
In the past, the Department of Veterans Affairs (VA) and the SBA have teamed up to make low-interest loans available for veterans who otherwise might not be able to get financing for their businesses.
Note that these programs are approved for set periods, and then are renewed or left to expire. As a result, the availability of SBA loans for veterans can change.
Are There SBA Loans for Veterans?
Yes. As of January 2020, the only SBA loan program exclusively for veterans is the SBA 504 VetLoan Advantage.
In the past, SBA loan programs available to veterans were technically small business VA loans backed by the government. Although these were similar to other types of small business loans, they included special provisions for veterans to make the financing more accessible and affordable.
What Is an SBA loan?
The SBA doesn’t lend money. The agency guarantees the majority of the loan, thereby lowering a lender’s risk and making the financing firm more likely to fund a small business. The SBA also offers favorable interest rates and other benefits, including educational resources.
The SBA’s loan programs provide lending opportunities to underserved entrepreneurs, including military veterans, minorities and women. Learn more about SBA loans here.
Former and Current SBA Veteran Loans
When they were available, SBA veteran loans were reserved for military veterans and their spouses, and specific documentation was required to apply. For example, a veteran or their spouse needed to own and control at least 51% of a small business to qualify for these loans.
The SBA no longer provides these VA loan programs:
- SBA Patriot Express
- SBA Veterans Advantage
The SBA Patriot Express loan program began as a pilot program in 2007, but the SBA hasn’t renewed it since it was discontinued in 2013.
Veterans Advantage offered fee reductions for eligible active or former military service members applying for SBA Express loans, but according to an SBA official, this program is no longer available as of the first quarter of 2020.
Again, there is 1 active SBA loan program for veterans as of 2020: the SBA 504 VetLoan Advantage.
That said, U.S. military veterans still may qualify for other SBA programs, including:
- SBA Express
- 7(a) Loans
- 504 Loans
- Military Reservist Economic Injury Disaster Loan (MREIDL)
SBA 504 VetLoan Advantage
SBA 504 loans must be used for fixed assets or the refinancing of debt tied to them. Depending on the type of project, the maximum loan amount for the 504 program ranges from $5 million to $5.5 million. This is ideal for larger, capital-intensive projects, but you must meet specific job-creation goals.
The 504 loans are provided through Certified Development Companies (CDC), which are licensed by the SBA. The National Association of Development Companies (NADCO), a trade group, created the VetLoan Advantage strategic initiative to offer discounts to veteran businesses that are approved for SBA 504 loans.
Under the VetLoan Advantage program, each participating CDC creates its fee waivers and discounts for eligible small business owners.
Ownership and eligibility requirements vary, so it is best to reach out to a CDC directly.
The Military Reservist Economic Injury Disaster Loan Program
The Military Reservist Economic Injury Disaster Loan (MREIDL) program can help a veteran who has hired active service members at their small business. Any small businesses dealing with economic hardship as a result of active military duty can apply for the MREIDL program.
The purpose of the MREIDL program is to help small businesses meet their regular and necessary operating expenses during a disaster or situations of hardship, including if their employees are called for military service.
MREIDL only can be used for working capital and isn’t intended to replace profits. These loans are available to both regular small businesses and small businesses owned by military veterans or active service members.
The interest rate on MREIDL loans can be no more than 4% a year, with a maximum of 30 years of maturity. Small businesses can borrow up to $2 million under this program, but collateral is required for loans exceeding $50,000.
SBA Express Loan Program
Although the SBA Patriot Express Loan ended in late 2013, veterans and nonveterans still can participate in the SBA Express loan program.
Business owners can borrow up to $350,000 through the SBA Express program, which features a turnaround time within 36 hours. These loans include an SBA guaranty fee. (Note: Guaranty fees are no longer reduced for veterans following the expiration of the SBA Veterans Advantage loan program).
Regarding SBA Guaranty Fees
An SBA guaranty fee is a percentage of the SBA-guaranteed amount of your loan. First, the SBA charges lenders a guaranty fee for helping back a loan. Typically, lenders then pass this cost onto you, the borrower.
The guaranty fee is often incorporated into the total cost of a loan, so it isn’t always an upfront expense. Learn how SBA guaranty fees work here.
SBA Express loans can be used for several different business purposes beyond startup costs. If you qualify, you can use this loan to expand your business, purchase new equipment, obtain working capital or purchase real-estate.
While SBA Express loans typically have low interest rates, borrowers can negotiate. Interest rates can’t exceed the maximum SBA interest loan rate, which can vary depending on the loan amount, term and the prime rate.
If you’re a veteran who is considering beginning or expanding your international export business, an Export Express loan may be the better choice.
Both types of Express loans are subsets of the SBA 7(a) loan program.
SBA 7(a) Loans
SBA 7(a) loans, available to both veterans and nonveterans, have several uses, including equipment financing, working capital, debt refinancing or seasonal lines of credit.
The maximum loan amount is $5 million. The SBA caps interest rates for 7(a) loans. Keep in mind this program has a longer turnaround time than Express loans.
|SBA Express Loans||SBA Export Express||SBA Standard 7(a)|
|Maximum Loan Amount||$350,000||$500,000||$5 Million|
|SBA’s Percent of Guaranty||50%||90% for loans of $350,000 or less|
75% for loans greater than $350,000
|85% for loans of $150,000 or less|
75% for loans greater than $150,000
|SBA Turnaround||Within 36 hours||Within 24 hours||5-10 business days|
SBA Support for U.S. Military Veterans
There are other financing options for veterans, including microloans for startups.
Use discretion when taking out a loan. Be sure to map out your repayment plan in advance to avoid any unpleasant surprises down the road.
To learn more about how the SBA helps veteran-owned businesses, including funding and training programs, contact your nearest Office of Veterans Business Development (OVBD).