If you’re looking for a VA business loan, then you have several options available to you. Much like mainstream financing, they differ in relation to who is eligible, what the terms are, and how much you can borrow. However, veteran business loans also feature unique guarantee and interest rate options that make them much more competitive than traditional loans. In this article, we discuss what a VA business loan is and who can apply, along with some of their unique benefits.
What is a VA Business Loan?
VA business loans are aimed at veterans and their families and are intended to support their small business efforts. The term ‘VA business loan’ is actually a bit misleading since they aren’t supplied by the VA or Veterans Administration. But they are overseen by the Office of Veteran Affairs which is part of the Small Business Administration (SBA).
People who have served in the military, as well as their spouses, are eligible for a VA business loan. These can provide much-needed funding for your small business and often come with more favorable terms than traditional bank loans. It’s important to note that they are different from grants in that they need to be repaid and are also subject to interest.
There are several VA loan options available to currently serving military personnel and veterans. The SBA Express, SBA 7(a), and Military Reservist Economic Injury Disaster Loans (MREIDL) are all guaranteed by the Small Business Administration. These offer preferential terms and discounted fees for the veteran entrepreneur to start a business or fund an existing one.
Who is Eligible for a VA Business Loan?
In order to apply for a VA business loan, you must fit specific eligibility criteria. You’ll need to be in the military, a veteran, service-disabled veteran, reservist, or member of the National Guard. Current spouses, widows, and widowers are also eligible for this type of small business loan. However, veterans who have been dishonorably discharged are not eligible to apply for a VA loan.
The business that the loan relates to does not need to be solely owned by veterans or military personnel. However, a person fitting the above eligibility criteria must own at least 51% in order for the business to qualify. There are also some requirements in terms of the type of business being run. For example, gambling businesses, pyramid schemes, and lending operations would not be eligible. Non-profit ventures are also ineligible, so you can only apply if your business is run with the intention of generating profitable revenue.
What Can VA Business Loans be Used For?
You can use a VA business loan for a wide range of activities. If you’re planning to start a business then you can use it to invest in stock, secure commercial premises, or new business development efforts (like marketing or telesales) to acquire your first few customers. You might need to purchase equipment or hire employees to get your business off the ground. If you’re looking to secure government contracts, then you may need to invest in the necessary permits and licenses that they require.
Veteran business loans can also be used to fund established businesses. The money could be used to increase your working capital, purchase additional inventory to sell on, or grow your team. You might need it to invest in expansion to larger premises or across multiple locations. Perhaps you’ve been offered an opportunity to acquire a competitor but need additional funds to take full advantage.
If you face the possibility of being deployed, then a VA business loan can also help you prepare your company in advance. The funds could be used to hire a management team to lead the business in your absence, or a specialist who is able to carry out the tasks that would usually be done by you. If your business has been impacted by a declared disaster (such as an earthquake, hurricane, or tornado) then a VA loan may help it to recover quickly.
Different Types of VA Business Loans
The Small Business Administration is a federal government agency that provides support to entrepreneurs and people who run small businesses. It provides three types of loan that are designed to help veterans in business; the SBA Express, SBA 7(a), and Military Reservist Economic Injury Disaster Loan. In this section, we’ll look at each of these VA business loan options in more detail.
SBA Express Loan
The SBA Express Loan initiative is open to everyone but offers additional benefits to veterans. The ‘Veteran Advantage program’ enables all the upfront loan guarantee fees to be waived and allows veterans to borrow up to $350,000. The SBA will guarantee up to 50% of your loan amount.
Another benefit of the Express loan is that it’s fast. You are guaranteed to receive a decision within 36 hours of your application being submitted. This enables you to move quickly and put the money to use almost immediately. You can often benefit from longer repayment terms so you have more time to pay the loan back.
This type of VA business loan is guaranteed by the SBA but issued by lenders. You don’t borrow from the government directly but one of its approved banks or loan companies. The SBA guarantee a proportion of your loan amount in case you find yourself in a situation where you’re unable to repay it. This means that you’re often able to access better terms and interest rates than you would be able to independently. Although the rates are decided by the lender, the government limits how much they can charge.
You won’t need collateral if you are borrowing less than $25,000. If you are borrowing more, then the lender will apply its own collateral policy. Therefore it pays to shop around and find a VA business loan lender with fair collateral requirements. Typical interest rates vary from 2.25-4.75% above the prime interest rate.
SBA 7(a) Loan Program
The SBA’s 7(a) Loan Program is open to both non-veterans and veterans alike. Similar to the Express option, the Veteran’s Advantage program also applies which means you won’t be charged upfront guarantee fees for loans of $125,000 or less. If you want to borrow more than this amount, then you’ll receive a 50% waiver on the guarantee fees to make it more affordable. This program guarantees up to 85% of your loan amount up to $150,000 and then 75% of the amount above that (up to $3.75 million).
This assistance program allows you to borrow up to $5 million worth of funding in total so it’s a worthwhile option to look into if you need a large amount. Although the application process tends to take longer than the Express option the total amount you can borrow is significantly higher. The SBA is also known for providing training and counseling in addition to their finance solutions to help you get the best possible business results from your funding.
Military Reservist Economic Injury Disaster Loan (MREIDL)
The Military Reservist Economic Injury Disaster Loan (MREIDL) is another VA business loan option. It is designed for reservists who are called up to active duty and need funding for their business whilst they are away. The loan provides additional working capital in situations where a business could have met their financial obligations had their owner not been called up for military service.
The MREIDL is not intended to be a replacement for profits that might be lost in the absence of the owner. It is designed to fund existing obligations and enable working capital to be replaced so that the business survives while the owner is away. The SBA will investigate whether a business has the resources to recover on its own prior to granting the loan application. Approximately 90% of businesses have been deemed as unable to recover in the past so there’s a strong chance that your application will be successful (assuming everything else in your business meets the criteria).
You’ll usually be charged 4% interest on the loan which can have a maximum term of 30 years. The largest loan amount available is $2 million but you may be able to request an exception. This will be dependent on your business situation and recovery capabilities.
Learn More About Our VA Funding Options
Choosing a VA business loan from United Business Funding can give you the capital you need, for today and tomorrow. We are proud to support veterans who have served our country and now want to pursue a new career. Our tailor-made packages are the ideal solution for active duty personnel and veterans alike. We’ll take care of all aspects of finance, so you can focus on the making your business a success. We can also help you with other areas of funding such as arranging a line of credit or equipment financing.
Our hassle-free application process is fast and simple, with unrivaled support the whole way. CLICK HERE to learn more about our small business loans or call us FREE on 888-351-3863 to speak with one of our funding advisors today.