What Should a Veteran Entrepreneur Know About Applying for a Veteran Business Loan?
The following four topics offer advice for veteran entrepreneurs who are hoping to start their own small business. Form understanding the challenges of running a business to applying for loans, these points can serve as a guide for the aspiring veteran small business owner.
Know the Challenges that Veteran-Owned Small Businesses Face
Even though there is a large number of small business owners who are veterans, in general, veteran business ownership has declined in recent years. Since 2001, less than 5% of veterans have started their own business ventures. This is a steep decline from the post-World War II period when almost half of war veteran opened their own businesses upon returning home from service.
According to a study by Syracuse University, one of the greatest challenges faced by veteran entrepreneurs is access to capital. Indeed, the majority of veteran business owners agreed that limited access to capital inhibited their ability to grow their businesses. Part of the reason this problem exists is that the current G.I. bill does not provide low-interest loans to start a veteran-owned business. The previous G.I. bill, by contrast, did just this.
Veteran-owned small businesses form a crucial part of the American economy. These ventured also provide safe havens for veterans returning from combat or service. These individuals benefit from working for someone who understands their history and needs. The advantages of these veteran-run workplaces make it especially important that business owners know their financing options.
How to Choose a Veteran Business Loan
A veteran applies for a small business loan in the same manner as any other businessperson. In order to apply for a traditional term loan, a veteran business owner will need to provide financial statements, a detailed business plan, as well as business documentation.
A veteran also has the option of applying for a Small Business Administration loan, the details of which are discussed in the following section.
Small Business Administration (SBA) Veteran Loan Options
It is important to remember that when a business owner receives a loan from the Small Business Administration, the organization will not be lending the business owner the money. Rather, the owner will be borrowing from a bank, financial institution, or online lender that offers SBA-backed loans.
In addition, one should remember that it is necessary to have a strong credit score and finances to qualify for an SBA-backed loan. In essence, SBA loans are designed for businesses that have used all their other financing options and require an alternative. For this reason, if a small business owner has not yet applied to other business entities, he or she will likely not qualify for a Small Business Administration loan.
An entrepreneurial training program is available for veterans through SBA.gov and the Office of Veterans Business Development. This program can teach veterans the basics of entrepreneurship or running a small business. It also helpfully includes advice on how to create a business plan.
The Small Business Administration also offers the SBA Veterans Advantage program. This program is only available to businesses that are owned 51% or more by an individual who meets the following specifications:
- A veteran that is an active-duty service member
- Any veteran (that has not been dishonorably discharged)
- Service-disabled veteran, reservist, or national guard member
It is also important to note that the husbands or wives of any veteran that meets the above requirements also qualify for this kind of funding. Also, widowed spouses of service members who died in service or from a service-related disability qualify for this program.
In general, the Small Business Administration Veterans Advantage program simplifies the process for veterans to obtains loans. Happily, it also makes the process more affordable.
How to Choose the Right Kind of Veteran Business Financing
Though the process requires both resources and time, applying for a loan is typically straightforward. That said, it is a bit harder to choose a loan structure that is suitable for one’s specific business. In order to determine this, a business owner will need to think about his or her particular business needs. When a business owner chooses the appropriate loan for his or her small business, this type of small business financing can help take one’s company to the next level of success.
However, before taking out a loan, a small business owner should know how they plan to spend the money. For example, does an owner require a safety net to protect the business in the event of a crisis? Perhaps a business owner would like to grow or expand their existing business and requires capital to make this growth possible. By answering these questions first, a business owner will find it easier to determine the appropriate type of loan needed.
A small business owner should also consider other types of financing, including the following options:
- Business credit cards
- Merchant cash advances
- Invoice factoring
- Equipment financing
- Line of credit
In fact, many of these options could be a good fit for a small business. They might even suit a business better than a traditional small business loan, and therefore should not be discounted before fair consideration.
While thinking about different loan options, a small business owner should remember their own financial health. Whatever type of financing a small business owner is considering, poor credit history and financials can make it hard to secure a good deal on a small business loan. These factors can also make it hard to secure affordable interest rates. For this reason, it is important, again, to think about alternative sources of business funding. These alternate kinds of funding can be helpful while a business grows to the point that it may qualify for a traitional loan type.
Summary
Approximately 30% of veteran small business owners use their personal savings for investments in capital. Many of these individuals would benefit from taking out a small business loan. While it is true that an individual does not have to pay interest on savings, relying solely on savings can slow a business’ growth in the long-term.
In short, a small business loan is an excellent easy to grow a business, and veteran entrepreneurs should be sure to consider it.
