Va Small Business Loans For Veterans – Many veterans transitioning to civilian life choose the traditional route of seeking a “nine to five” job. Some veterans decide to start a business. But like most new business owners, that means getting financing with the right small business loan.
Did you know that veterans are 45% more likely to start their own business than non-veterans? That’s according to Operation Entrepreneurship, a recent study that sought to determine the inspirational motivations and challenges faced by veterans starting their own businesses. Veterans often have the training needed to run a business, such as discipline, problem-solving skills, and the ability to follow through when the going gets tough.
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Some of the most common obstacles for veterans include lack of mentorship, work-life balance (or lack thereof) and lack of capital. When it comes to financing, a military veteran interested in becoming a small business owner can look into a veteran small business loan.
What Is A Va Loan?
For veteran entrepreneurs, there are small business loans and small business resources that can help them succeed. A veteran small business loan is not necessarily a VA business loan, as the VA partners with the SBA to provide business loan options for veterans through third-party lenders. However, you may hear about them as VA small business loans.
SBA 7(a) loans are not exclusive to veterans and are in fact the most common type of small business loan. To qualify for an SBA 7(a) loan, the borrower must demonstrate a need for a business loan with a sound business purpose to operate a profitable business in the United States. The borrower should have first tried to tap other financial resources, such as personal assets, to start their business.
If a business is at least 51% owned by a veteran or borrower who received an honorable discharge, is an active duty reservist or a member of the National Guard, or meets other select criteria (such as being a widower or spouse of a veteran), an SBA loan can be extended under the Veterans Advantage program.
In some situations, a veteran can get an express loan from the SBA as part of the Patriot Express loan program. These loan options are some of the easiest ways to get an SBA 7(a) loan, but funding limits will generally be lower with a maximum of up to $1 million.
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An SBA 504 loan is for a medium-sized or larger business with a tangible net worth of at least $15 million. The business must show an average net income of $5 million or more for the past two years before you apply for your SBA loan. The company must also be operating in the United States.
SBA 504 loans are not intended to be used to start a business or even to finance inventory. It cannot be used to restructure debt or for real estate investments (veterans can get a VA loan for their primary residence instead). An SBA 504 loan can be used to expand and upgrade business infrastructure, purchase land, buildings, machinery or equipment. It can also be used to improve the appearance of a landscaping business, modernize your equipment, pave your roads and parking lots, or anything else that needs to be done for your existing facilities.
If your small business does not require a lot of start-up capital, or is one of the eligible non-profit child care facilities, an SBA microloan can provide up to $50,000 in financing. A microloan is quite flexible in how it can be used, from inventory to start-up costs to fixtures, furniture and business supplies. Most microloans are available through nonprofit organizations that focus on community development.
SBA Veterans Advantage guaranteed loans can be up to $150,000 with no guarantee fee, or up to $500,000 with a guarantee fee half that of non-veteran business loans. A veteran can use this loan to borrow up to $5 million at a rate that depends on the loan amount and term, but still has more favorable loan terms than a home owner loan.a non-veteran company.
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SBA Express loans carry no fees in this program. The guarantee fee is intended to cover the costs the government bears if a borrower defaults on their SBA loan. For example, loans of less than $500,000 with a repayment period of more than 12 months will have a guarantee fee of 1.5%, while loans of less than $500,000 with a repayment period of less than 12 months will have a guarantee fee of only 0.125 will have %.
For loans over $500,000 and under $5 million anything less than 12 months overdue will have a 0.25% guarantee fee, while over 12 months it will be 3% for amounts borrowed up to $700,000, and 3.5% for anything above. this
An EIDL is a loan granted to business owners who need financial assistance to carry their business through difficult times. This type of loan can be used to cover lost earnings, so the recipient can maintain their business and cover their payroll, and to restructure or refinance debt. Many EIDL loans have been extended in the wake of the Covid-19 pandemic. The MEREIDL program is for veterans only and can provide loans of up to $2 million. Anything over $50,000 will require a mortgage.
The SBA may waive the $2 million limit if they determine that your small business is a significant source of employment and economic activity. After all, SBA loans are meant to stimulate the economy by keeping businesses open. If the SBA determines that a business can finance its own recovery, it will not defer an MREIDL loan.
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Hivers and Strivers is not a loan offered by the SBA, but is an example of angel investment or venture capital financing. These are private sources of funding from angel investors, accredited investors or others interested in investing in small and medium-sized companies.
Hivers and Strivers is just one example of such private funding. The program has helped a wide range of companies, from Black Rifle Coffee Company (food services) to Independence Hydrogen (green energy). Venture capital financing may be somewhat easier to obtain than SBA loans, and terms and amounts may have greater flexibility.
The Veteran Entrepreneur Portal (VEP) helps connect veterans with funding sources. But more than that, it also connects veterans with educational resources on business ownership and some mentoring on marketing and business development. There is also the opportunity to get government contracts, which can be a great way for a veteran business to get a steady stream of income.
In some situations, veteran businesses will receive preferential treatment in the selection process. The small business market share of all small businesses participating in government contracts is about 23%.
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There are several ways to finance your veteran business outside of the VA and the SBA. Private financing programs such as Hivers and Strivers can provide a source of venture capital.
One way to discover sources of venture capital is to create LinkedIn profiles for yourself and your company, and in the About section indicate that you are a veteran with a veteran business. Private lenders will be able to find you with a quick search, but make sure you or someone you trust can help analyze proposals from a private lender or venture capital firm.
There is also the possibility of using crowdfunding on a website such as Kickstarter or GoFundMe. Small businesses of all types and orientations have used crowdfunding to successfully raise much-needed capital. Then there is also the possibility of seeking small business grants from the VA. Grants can be better than loans for some borrowers, especially when the grant is a gift that does not have to be repaid (not all grants are, however).
Some veterans choose to use their own available capital to finance their startup or revive their existing business. There are definitely advantages and disadvantages to it, one obvious advantage is that there will be no loans or interest to pay back, and one obvious disadvantage is the risk of losing your savings. There are a number of options for pursuing entrepreneurship, and being a veteran is not limited to just the SBA.
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Although entrepreneurship among veterinarians is very high, it has decreased slightly over the years. About half of World War II vets became self-employed, but that number dropped to 40% of Korean War vets. In the post-9/11 era, just under 5% of veterans open their own businesses.
This trend is not unique to veterans: Small business ownership has generally declined since the 1970s. Experts blame the proliferation of corporate-owned chain stores, the rising cost of education and their resulting student debt, and the fact that many corporations are now chasing entrepreneurial ventures by leveraging their working capital.
But small businesses have long been the lifeblood of our economy, and despite downward trends, small businesses account for 44% of economic activity and 43.5% of national GDP.
That’s why the Small Business Administration was founded in the 1950s: to facilitate the growth of small businesses through financing solutions, entrepreneurship training and access to government contracts.
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