Financing Options for Veterans

Roughly one veteran-owned business exists for every ten veterans, a statistic demonstrating how many service members decide to open their own businesses. However, finding financing can pose a major obstacle in this entrepreneurial pursuit. As such, we’ll use this article to outline the best financing options for veterans.

Specifically, we’ll discuss the following:

• An Overview of Small Business Financing
• General Resource: Veteran Entrepreneur Portal
• Financing Option 1: SBA Loans (7(a) and Express)
• Financing Option 2: Military Reservist Economic Injury Disaster Loan
• Financing Option 3: Service-Disabled Veteran-Owned Small Business Program
• Financing Option 4: Accion Veteran-Owned Business Loans
• Financing Option 5: StreetShares
• Financing Option 6: Friends and Family
• Final Thoughts

An Overview of Small Business Financing

As stated in the introduction, veterans start businesses at extremely high rates following service. Of note, according to the Small Business Administration (SBA), veterans are 45% more likely to be self-employed than their non-veteran counterparts.

Regardless what type of small business you want to open as a veteran, you’ll need access to capital. Simply put, you need money to start a business, and there’s no getting around this fact. For some veteran businesses, these start-up financial requirements may be small enough that you can use your own savings.

However, starting something like a craft brewery or distillery could require hundreds of thousands of dollars in start-up capital, money most people just don’t have. Or, say you want to start a food truck business. Even if you get a great deal on an old truck, you’re still looking at thousands of dollars to outfit it, put together some initial operating cash, and file for all your required licenses.

Bottom line, start-up capital requirements will vary by business type, but you will have financial requirements. Small business financing is the umbrella term representing the means that aspiring business owners obtain these necessary start-up funds. After veterans determine how much money they’ll need, they next thing they need to determine is where they’ll actually get that money.

In the following sections, we’ll outline common financing options for veterans as they begin their entrepreneurial journeys.

General Resource: Veteran Entrepreneur Portal

The Veteran Entrepreneurship Portal (VEP) isn’t a financing option, per se. Rather, this Department of Veterans Affairs resource compiles all sorts of valuable information for veterans considering opening a business, to include key steps to both start and grow a business, find federal contracting opportunities, and access a variety of resources tailored specifically towards the veteran small business community.

From a financing perspective, the VEP has an Access Financing sub-portal that helps veterans identify funding resources for all stages of the veteran business life-cycle. From start-up to development to growth, this resource helps veterans find funding resources. Whether you want to start a new business, expand a business into another field, or purchase a franchise, the VEP will help connect you to critical resources.

Financing Option 1: SBA Loans (7(a) and Express)

The SBA provides the following two outstanding financing options for veterans.

SBA 7(a) Loan

This is the most popular SBA loan for small businesses. It’s open to both veterans and non-veterans, and it offers up to $5 million in small business loans with low interest rates and repayment terms up to 25 years (a term typically reserved only for real estate).

While this program isn’t solely reserved for veterans, the SBA does include a Veterans Advantage Program within the 7(a) loan program. With this benefit, the SBA waives upfront fees for veteran loans of $125,000 or less. Furthermore, as part of this program, the SBA provides small business counseling and training to qualifying veterans – outstanding support during the transition from military to business life.

SBA Express Loan

These loans are technically a subprogram of the above 7(a) loan program, but they cap at $350,000. However, the major benefit of these – as the name suggests – is the fast approval. Rather than a long and drawn out approval process, these loans can be approved quickly (in days, rather than weeks or months).

And, as with the broader 7(a) loan program, qualifying veterans can use the Veterans Advantage Program with these loans to receive an up-front fee waiver.

Financing Option 2: Military Reservist Economic Injury Disaster Loan

When military reservists activate, they put their entire lives on hold, a reality that can destroy a small business. The SBA recognizes this drawback to activation and has created a program to mitigate the negative effects on veteran-owned small businesses. Specifically, the SBA’s Military Reservist Economic Injury Disaster Loan (MREIDL) offers eligible veterans extremely low-interest loans that can be used to rebuild their businesses after completing an active tour.

Unfortunately, key restrictions limit the pool of eligible veterans. To qualify, veterans must:

• Apply within one year of release from active duty.
• Receive an SBA determination that the business wouldn’t be able to recover without government assistance.

Despite these restrictions, for veterans who do qualify, the MREIDL can be a critical financing option for rebuilding small businesses following military service.

Financing Option 3: Service-Disabled Veteran-Owned Small Business Program

Similar to the MREIDL, the SBA’s Service-Disabled Veteran-Owned (SDVO) Small Business Program only serves a subset of the veteran community, namely, service-disabled vets.

According to the SBA, the federal government seeks to award at least three percent of all federal contracting dollars to SDVO small businesses every year. To meet this goal, the SBA created this program. Through it, veterans who have a service-connected disability and are the principal owners (51% or greater ownership) of small businesses may be connected with government contracts up to $5 million.

While not a traditional financing option, priority access to these sorts of government contracts can give SDVO small business owners access to critical capital (albeit via revenue, not financing) to get their businesses off the ground.

Financing Option 4: Accion Veteran-Owned Business Loans

Accion is the first non-government financing option on this list. More precisely, it’s a nonprofit organization that provides financing for qualified veterans. To see if you qualify for up to $1 million in small business loans, complete the Accion Network’s roughly 15-minute application (actual loan amounts will depend on the business’s unique needs).

If eligible, these loans can be used to:

• Buy or upgrade business equipment.
• Purchase inventory.
• Hire new staff.
• Market business services/products to potential customers (with certain restrictions).

Furthermore, Accion recognizes that many veterans who apply for financing will not meet qualification criteria. As such, the organization provides financial planning, organizational, and management resources to help veteran-owned businesses become loan ready.

Financing Option 5: StreetShares

Like Accion, StreetShares offers a non-government financing option for veterans. However, StreetShares is a for-profit loan marketplace. And, while not limited to veterans, StreetShares has a veteran CEO who has committed the company to funding as many veteran-owned small businesses as possible.

With the platform, investors provide funds, and those funds are in turn used to provide small business financing for applicants. For veteran business owners, this set-up means that StreetShares is able to offer a streamlined, cost-effective financing solution. And, with respect to financing structure, the company offers both its Patriot Express Line of Credit and term loans, depending on your specific business needs.

Financing Option 6: Friends and Family

While you may not think of them as a financing option, friends and family represent the most common source of debt financing for start-ups. In theory, these are the people who know and trust you, and they’re likely going to believe in your business vision. However, borrowing funds from friends and family comes with particular pitfalls, too, which means you should take the following precautions if considering this financing route:

• Treat friends and family as if they’re strangers: It protects all parties to insist on the same legal documentation and “arm’s length” bargaining that would be undertaken with strangers.
• Debt is better than equity: If you borrow money as a loan, you only need to pay it back with interest – the lender has no actual stake in your business. If you receive money as an equity investment, the investor now owns a stake in your business. This can lead to uncomfortable situations if your friends and family have different visions for business operations than you do.
• Tie all payments to business cash flow: If you can avoid fixed repayment schedules, you’ll be far safer financially, especially in the earlier stages of a business. With this sort of set-up, you agree to pay back debt every period (typically month, quarter, or year) based on your operating results. As such, if you have a down quarter, you’re not saddled with a mandatory debt payment. Conversely, in a successful period, you’ll pay back more of the debt than you otherwise would.

Final Thoughts

As the above SBA statistics demonstrate, veterans open businesses at a significantly higher rate than their non-veteran peers. However, veteran or not, starting a business requires money, and, while the above is not an all-inclusive list, the financing options outlined in this article provide a wealth of opportunities for veterans to finance their small businesses.

Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.