Veteran-owned businesses make up just under 10 percent of all businesses in the U.S., according to a 2017 report by the Small Business Administration. Despite veterans’ propensity toward entrepreneurship, funding options for veteran-owned business can be difficult to find. According to the same report, nearly 60 percent of veterans’ startup or acquisition capital comes from personal or family savings, while less than 10 percent comes from loans from federal, state, or local government, government-backed business loans from banks, or business loans from banks or other financial institutions.
Obtaining startup financing is always a challenge, but veterans may have an especially difficult time. Because their housing, transportation, and many other daily necessities are handled by the military, they may not have built credit while actively serving.
Fortunately, many organizations, including the U.S. Department of Veterans Affairs (VA) and the U.S. Small Business Administration (SBA) have stepped up to provide resources for veteran entrepreneurs. In this guide, we’ll take a look at the options available for current veteran business owners and veterans looking to start their own business.
Traditional bank loans
Borrowers who bank with a financial institution that caters to military members should talk to a loan officer at their bank first.
Navy Federal Credit Union provides small business financing of up to $50,000 through a combination of term loans, business credit cards, vehicle loans, and business checking lines of credit. A four-page application is available on their website and can be submitted online.
Fort Knox Federal Credit Union, which is available to active duty military, reserve, National Guard, and civil service employees and retired military or civil service members, provides SBA-backed commercial real estate loans. You can request more information by filling out a Commercial Loan Request Form online.
Tammy Everts, a certified business adviser with the Spokane Small Business Development Center, says borrowers with a good credit score seeking a loan of less than $150,000 may be able to qualify for a loan based on their credit score alone. “Talk to your commercial banker where you already have a relationship,” Everts says. “If you’re denied there, then you can expand your search.”
Neither the VA nor the SBA loan money directly to veteran entrepreneurs, but the SBA does guarantee small business loans for veterans. This means that should the business default on the loan, the government will pay a portion of the remaining balance back to the lender. This guarantee encourages banks to lend to applicants that might otherwise be considered too great a risk.
Everts says veterans, unfortunately, have fewer options than they did a few years ago. Prior to 2013, the SBA offered the Patriot Express Loan targeted at helping veterans and active duty military with loans up to $500,000. That program ended, but Everts says it was rolled into the SBA Express Program under the name SBA Veterans Advantage
To qualify, the business must be owned and controlled (51 percent or greater) by a veteran.
The SBA defines a veteran as:
- Veterans (not those dishonorably discharged)
- Active-duty military participating in the Transition Assistance Program (TAP)
- Reservists and National Guard members
- Current spouses of any veterans, active duty service members, reservists, or National Guard members and widowed spouses of any service members who die while in service or of a service-connected disability.
To document eligibility, the borrower must provide a copy of Form DD 214 or other documentation as outlined in SBA Information Notice 5000-1390. Eligible veterans have four options under the Veterans Advantage Program:
SBA Express loans of $150,001 to $350,000
- No upfront fees
- Two-page application and response within 36 hours
- The SBA guarantees 50 percent of the amount borrowed
SBA 7(a) loans $150,000 and under
- No upfront fees through 9/30/17 (typically 1.5 percent of the guaranteed portion)
- Terms up to 10 years for equipment and up to 25 years for real estate
- The SBA guarantees 85 percent of the amount borrowed
Non-SBA Express loans $150,001 to $500,000
- The upfront fee is 50 percent less than the fee charged to non-veteran owned small businesses as follows:
- Loans with terms greater than 12 months: fee is 1.5 percent of the guaranteed portion
- Loans with terms of 12 months or less: fee is 0.125 percent of the guaranteed portion
Loans of $500,001 to $5 million
- For loans of $500,001 to $700,000, upfront fee is 3 percent of the guaranteed portion
- For loans of $700,001 to $5 million, upfront fee is 3.5 percent of the guaranteed portion up to $1 million, plus 3.75 percent of the guaranteed portion over $1 million
Note that for all but the Express Loan, the reduced fees are applicable only for loans made until September 30, 2017. The fee waiver has been extended in the past, but there is no guarantee it will be extended again.
Interest rates on all SBA loans are negotiated between the lender and the borrower.
How to apply
To apply for an SBA-backed loan, borrowers can use the Lender Match tool available on the SBA’s website. Everts says qualifying for an SBA Veterans Advantage loan isn’t really different from other bank loans. “The bank will expect a 15 percent cash contribution from the business owner and a good credit score,” Everts says. “With a credit score over 700, the borrower may be able to get a loan with very little paperwork.
Nonprofit lenders can often provide small business funding when traditional banks won’t.
CDC Small Business Financing VetLoan Advantage
CDC Small Business Financing’s VetLoan Advantage Program is available to veterans looking to purchase commercial or industrial buildings and equipment.
The VetLoan Advantage loans are backed by the SBA, but they offer lower down payments (typically 10 percent). Mike Owen, Chief Credit Officer and Director of Business Development for CDC Small Business Finance, says CDC provides a cash rebate of up to $3,000 to help veterans offset loan expenses. Borrowers can prequalify for a loan online.
The Jonas Project
The Jonas Project provides startup funding, training, and mentorship for veteran women. To qualify, applicants must be a U.S. military veteran with honorable discharge verification, demonstrate knowledge or skill in their desired field of business, and pass an extensive interview and qualification process. Applications are available online.
Veterans Business Fund
Veterans Business Fund (VBF) was established to assist veterans by providing them with the supplemental capital required to satisfy the equity requirements for a small business loan. VBF loans are non-interest bearing.
Currently, the VBF is not accepting applications until their necessary fundraising is complete, but borrowers should check back in the future to find out more about the application process and requirements.
If your borrowing needs are modest, a microloan may be the way to go. Microloans typically range from $500 to $100,000, although the definition of a microloan varies by lender.
Kabbage, a microlender that has provided over $3 billion in funding to more than 100,000 businesses, has a microloan program designed specifically for veteran-owned businesses. Borrowers can apply online or through the Kabbage mobile app for a line of credit up to $150,000.
Angel investment groups
Angel investors are affluent individuals who provide capital for a business startup, usually in exchange for ownership equity in the business. Some angel investors organize themselves into angel investment groups to share research, pool their investment capital, and provide advice to their portfolio companies.
Hivers and Strivers is a Great Falls, Va.-based angel investment group that focuses on investing and supporting startups founded and run by graduates of U.S. military academies. The group concentrates on investing $250,000 to $1 million in a single round, although they can work with other investment groups when larger financing rounds are needed.
Their investors, most of whom have also served in the military and have a broad range of experience in different industries and business models, will also serve as board members and advisers to the businesses they finance. Borrowers can submit their idea for consideration online.
Online lending platforms (sometimes referred to as peer-to-peer lending) are online services that match lenders with borrowers. Because they typically run with lower overhead, they often provide loans with better terms than traditional financial institutions.
StreetShares is an online lending platform that focuses on connecting veteran-owned and -run businesses with investors. They offer three different funding solutions:
- Loan amounts from $2,000 to $100,000
- Terms of three to 36 months
Patriot Express line of credit
- Lines of credit from $5,000 to $100,000
- Terms of three to 36 months
- Based on future earnings
- No limit on contract amount
StreetShares only loans to borrowers who have been in business for at least one year and have “reasonable” credit. Borrowers can get pre-approved in minutes, and there is no application fee.
Grants are attractive to entrepreneurs without a lot of cash available to start or grow a business because, unlike a loan, the funds do not have to be repaid.
The StreetShares Foundation awards $10,000 in business grants to veterans and military spouses each month. Applicants must be a veteran, reserve, or active duty member of the U.S. armed forces or a spouse of a military member or veteran. Selection criteria are based on the business idea, use of funds and potential impact, product-market fit, team and company history, and influence of the business on the military and veterans community.
Applicants must qualify for the award by downloading or viewing educational materials, then complete an online application that includes writing a 300-word summary of the business and submitting a short video about the project or company.
USDA Outreach and Assistance for Socially Disadvantaged Farmers and Ranchers and Veteran Farmers and Ranchers Program (a.k.a The 2501 Program)
The U.S. Department of Agriculture provides small business grants, education, training, outreach, and other forms of support to veterans and minorities looking to begin or expand agricultural operations. Funding opportunities are closed for 2017.
Veterans can also search for additional grant opportunities through grants.gov; however, Everts says her office typically counsels people to bootstrap their business because the process of searching and applying for grants can take a significant amount of time.
Other small business financing options for veterans
While funding is important, it’s often not the only resource veterans need to successfully start or grow a business. Here’s a look at some other great resources:
Boots to business
The Boots to Business entrepreneurial program is offered by the SBA. The curriculum includes a two-day classroom course on entrepreneurship as well as an eight-week online course with in-depth instruction on preparing a business plan and starting a business.
At the end of the eight-week online course, participants will have the tools and knowledge they need to identify business opportunities, draft a business plan, and launch a small business.
Veteran’s Business Outreach Center
Also funded by the SBA, Veteran's Business Outreach Centers are a resource for service members, veterans, and military spouses looking to start, purchase, or grow a business. Centers are located in 17 states.
Business counselors at the outreach centers provide mentorship and work with veteran entrepreneurs on business plans, feasibility analysis, and provide training on franchising, marketing, accounting, and more.
Syracuse University Institute for Veterans and Military Families
The Institute for Veterans and Military Families hosts conferences and provides training for veterans transitioning to civilian life. Their initiatives include:
Entrepreneurship Bootcamp for Veterans with Disabilities
Available to post-9/11 veterans with a service-connected disability. The boot camps feature a 30-day online program, nine days of live training, and 12 months of post-program support.
Bootcamp for Veterans Families
Available to military families who serve in a caregiver role to a veteran with a service-connected disability. The boot camps feature a 30-day online program, nine days of live training, and 12 months of post-program support.
Veteran Women Igniting the Spirit of Entrepreneurship
Women veterans and female military spouses can receive entrepreneurship and small business management training through Veteran Women Igniting the Spirit of Entrepreneurship. This three-phase program includes a 15-day online course, a three-day entrepreneurship training event, ongoing mentorship, training, and support opportunities for graduates launching or growing a business.
There is a one-time $75 registration fee for the program, but the SBA covers a two-night hotel stay for event attendees and all meals and educational materials during the conference. Veterans can view the program calendar and apply online.
The International Franchise Association created VetFran, a strategic initiative to teach veterans about becoming a franchise business owner. Veterans and their spouses can get help figuring out whether franchising is right for them and search a directory of franchises, many of which offer discounts or grant free franchises to veterans.
American Corporate Partners
American Corporate Partners connects post-9/11 veterans to corporate mentors from companies such as Deloitte, Morgan Stanley, AT&T, Coca-Cola, and Intel for year-long, one-on-one corporate mentoring. Mentors help veterans with small business development, professional communication and leadership skills, and career development.The program is open to service members, veterans, and spouses who meet the following eligibility criteria:
- Currently serving and recently separated veterans who have served on active duty orders for at least 180 days since 9/11.
- Surviving spouses and spouses of severely wounded post-9/11 veterans.
- Service members who served less than 180 days of active duty since 9/11, but who were injured while serving or training.
Applications can be completed online.
SCORE Veteran Fast Launch Initiative
SCORE (previously known as the Service Corps of Retired Executives) is a nonprofit association of thousands of volunteer business counselors throughout the U.S. Their Veteran Fast Launch Initiative provides mentoring and training to veterans transitioning to entrepreneurs. The program is a package of free software combined with mentoring aimed at helping veterans and their families start and succeed as small business owners.
In addition to templates and tools to help veterans plan and operate their businesses, veterans also receive five hours of free financial advice from a CPA.
National Veteran-Owned Business Association
The National Veteran-Owned Business Association (NaVOBA) doesn’t provide funding for veteran-owned small businesses, but it does provide networking opportunities for veteran entrepreneurs, encourages the federal government to spend their contract dollars with veteran-owned businesses, and advocates with state governments to pass laws creating opportunities for veteran-owned businesses.
The Bunker is an incubator for veteran-owned technology startups. They have local chapters throughout the U.S. that provide educational programming, resources, and networking for military veterans and their spouses interested in starting and growing a business. Their EPIC Entrepreneurial Program is a 12-week course designed to help participants launch a business.
The exact information you’ll need and qualifications to be approved for a loan depends on the funding option you’re interest in and the bank you’re working with. Some have simple applications and quick approval processes. Others will want to see collateral, business plans, personal financial statements, bank statements, and credit scores. Whatever funding opportunity you pursue, Everts recommends taking some time to prepare before applying. “Get your numbers in a row and know how much you can contribute to the business,” she says.
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