Image credit: Veteran Health

VA Business Loan, Grants and Resources for Veteran Entrepreneurs

For the vast majority of military borrowers, VA loans represent the most powerful lending program on the market. Like any person trying to start their own business, veterans need funding to get things off the ground.
By Hazel Nguyen | 10 min read
on April 20, 2020
Image credit: Veteran Health

If you’re looking at a range of different financing options, you may be wondering why the VA business loan is the best option. There are plenty of other great financing offerings on the plate – it just depends if you’re eligible for them. A veteran small business loan can help you bypass certain restrictions and attain the capital you need to start your business.

In this section of our page, we’re going to take a look at why a veteran small business loan might be able to help your business. Take a look at the different points mentioned in this section to help you determine if a VA business loan is right for you!

What is VA Business Loan?

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Image Credit: Merchant Maverick

A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction. Eligible borrowers can use a VA business loan to purchase a property as their primary residence or refinance an existing mortgage. The VA business loan does not originate loans but sets the rules for who may qualify, issues minimum guidelines and requirements under which mortgages may be offered and financially guarantees loans that qualify under the program.

If you’re a veteran and an owner of a small business, some resources and lenders offer specific financing options for military veterans starting or growing their businesses. To help you make a decision, we researched over 30 different lenders and loan programs to find some of the best small business loans for veterans.

How Does a VA Business Loan Work?

VA loans work a bit differently than conventional mortgages. The Department of Veterans Affairs (VA) does not make or originate loans but backs a portion of each loan against default. This backing, or guarantee, is what gives private lenders the confidence to extend $0 down financing and advantageous rates and terms.

However, from a process perspective, VA loans work fairly similar to most other mortgage options, but with a few caveats. A typical VA business loan process works something like this:

Get Prequalified

Find a VA lender and prequalify to get an estimate of how much house you can afford based on your income, credit, entitlement, and other financial factors. Prequalification is a basic first step that paves the way for a much more powerful step – VA business loan preapproval.

Get Preapproved

Loan pre-approval is a major step and puts you in the driver’s seat to spring into action when you find a home you love. Lenders will verify income and financial information to get a clear sense of your purchasing power. The result is receiving a preapproval letter. These letters show real estate agents and home sellers you’re a strong and serious buyer who has what it takes to get to closing.

Put in an Offer

When you and your agent find the perfect VA loan approved home, it’s time to craft an offer and negotiation a contract with the seller. It’s important to find a VA loan savvy agent you trust that also knows the ins and outs of VA loans.

Go Through the VA Appraisal and Underwriting

Once under contract, your lender will order a VA appraisal of the property. The VA appraisal is not a home inspection, but a VA requirement to ensure the property meets fair market value and the VA's minimum property requirements.

Around the same time, underwriters will evaluate your income, financial and related documents along with the appraisal once it’s finalized. If everything checks out, you’ll be issued a clear to close and move on to your loan closing.

Although the VA has no minimum credit score requirement, lenders usually require scores of at least 620. A few lenders will approve loans with credit scores as low as 580. And a borrower must be able to afford a home. The VA takes a real-life view of affordability by estimating the ability to pay the home loan after accounting for other monthly expenses.

VA Business Loan Requirements

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Image Credit: Press Association

To get this loan when you're looking to buy a home, military personnel have to meet the VA’s specific service requirements.

 Generally, you’re eligible if you fall into one of these three categories:

  • You’re an active duty service member or an honorably discharged veteran who has 90 consecutive days of active service during wartime or 181 days of active service during peacetime.
  • You have served more than six years in the National Guard or the Selected Reserve.
  • You’re the spouse of a service member who died in the line of duty.

If you were to go through the application process, you would need a Certificate of Eligibility (COE) to show mortgage lenders that you qualify for a VA loan. You can apply for a COE through the VA website, by mail, or through your lender.

SBA Business Loan for Veterans

According to the Small Business Association, veteran-owned businesses make up 9.1 percent of all US businesses — and they all need capital to get and keep them going. But securing financing for a startup or a small business is rarely easy. And it can be even more difficult for veterans, who may have gaps in their financial history due to time in active duty.

Luckily, there are a few options for business loans for veterans. Some are government-funded, while others come from the private sector. Let’s take a look first at government-funded business loans for veterans and then dive into the private sector.

 The U.S Small Business Administration (SBA) has implemented a new measure to help get small business loans into the hands of veterans. 

The SBA’s Veteran’s Advantage Loan program applies to loans for up to $350,000. The program applies to two SBA loans: SBA Express and SBA 7(a) loans.

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Image Credit: SBA

SBA 7(a) Loan

While the SBA 7(a) Loan Program is for both veterans and non-veterans, there are some special perks for vets under the Veterans Advantage program. The 7(a) Loan Program is the most popular SBA small business loan. 7(a) Loan Program SBA small business loans can be used for purchasing fixed assets, working capital, to finance startups, to purchase an existing business, and for debt repayment.

To qualify, a company must first meet the SBA size standards. Because SBA loans are specifically for small businesses, they’ve created a “size standards tool” that helps founders and small business owners determine whether or not they qualify.

For loans up to $125,000, vets can get upfront guaranty fees of zero. For loans greater than $125,000, vets are promised a 50 percent reduction of guaranty fees. Loans can be for up to $350,000.

SBA Express Loans

The Small Business Administration (SBA) offers an Express Loan program that is typically the most competitive option in the market. Office of Veterans Business Development offers several programs and services to support and empower aspiring and existing veteran entrepreneurs and military spouses. SBA provides training mentorship. Access to capital, preparation for opportunities I federal procurement, and cultivation of connections within commercial supply chains and disaster relief assistance.

SBA Express program is a great loan program for veterans. You can get approved for a loan up to $350,000, get rates of 4.5-6.5% and get a line-of-credit good for 7 years. You don’t need any collateral under $25,000

Boots to Business, the two-step entrepreneurial program offered by the SBA on military

  • Cash flow financing is a great loan program for veterans, if you’ve been in business one year or longer and have $10,000 in monthly revenue. All you have to do is have consistent revenue.
  • Unsecured financing is available for veteran entrepreneurs up to $150,000. You can get approved if you have good personal credit, and get 0% intro rates for 6-18 months, even as a startup
  • Collateral-based financing offers veterans low rate financing. Personal credit quality and revenue don’t determine your approval.

SBA offers some great loan programs including their 7(a) loan for working capital. To get approved, you will need 3 years of business and personal tax returns. Good personal, business, and bank credit, collateral for 50-70% of what you’re borrowing.

If you have good personal credit and tax returns for 2 years that show a good profit, alternative leaders have a program that may work, you can be approved with rates of 7% or lower. Lenders will want to see some type of profit on your tax returns.

Veterans Advantage

Veteran-owned businesses are one of the fastest-growing and significant segments of the U.S. economy. SBA loans made to veteran-owned small businesses come with reduced fees. 

To be eligible to receive fee relief through the Veterans Advantage program, a small business must be at least 51 percent owned and controlled by someone in one of the following groups:

  • Honorably discharged veterans
  • Active Duty Military service member eligible for the military’s Transition Assistance Program (TAP)
  • Service-disabled veterans
  • Reservists and/or active National Guard members
  • Current spouse of any veteran, active duty service member, Reservist, National Guard member, or the widowed spouse of a service member who died while in service or as a result of a service-connected disability

5 Popular Business and Other Loans Lenders for Veterans

Outside of the costs, the application process, customer service, and the online mortgage management experience are less important but can help one company stand out as better than the rest. Let’s dive in and look at the best VA business loan lenders in the market today.

#1 Veterans United Home Loans

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Courtesy: Veterans United Home Loans

Veterans United Home Loans specializes in just one thing: VA loans. When a company does just one thing above all else, it tends to do it very, very well. That’s the case here, and why Veterans United Home Loans earned the top spot on our list.

Veterans United managed to achieve one of the lowest rates of complaints we've seen of any VA lender. According to data obtained from the Consumer Financial Protection Bureau, less than 0.05% of all of its mortgages originated over the past five years received complaints. Contrast that against its competitors and customer testimonials and you’ll see why more veterans chose Veterans United for their home loans than any other lender.

Veterans United offers competitive interest rates and fees and can help any military applicant through the steps of the VA loan process. Besides, Veterans United Home Loans has generally very good reviews, scoring above the average financial institution. To qualify for a 0% down VA loan, you’ll need a credit score of at least 620.

#2 USSA

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Courtesy: USSA

USAA issued over $38 billion in VA home loans over the past 5 years, the greatest amount of any mortgage lender in the country.

USAA managed to snag J.D. Power's highest score in customer satisfaction for mortgage originations. Access to this bank is only available to those who are affiliated with the military and their families, which makes it an exclusive yet focused organization. USAA issued over 155,338 VA loans over the past five years, over three-quarters of those consisted of purchase loans, which represents the bank's affinity for getting first-time homebuyers situated in the home of their dreams.

SAA is the biggest bank built just for military members and families. While it is not a nonprofit credit union, it still offers very competitive rates paired with great customer service. While it doesn’t publish a specific minimum for VA loans, USAA does publish a minimum 620 score for mortgage loans.

One unique loan at USAA is a VA 5/1 adjustable-rate mortgage (ARM). After the five years, the rate adjusts up or down to market interest rates.

As a military service member or veteran, you should also consider USAA for its well-known, competitively priced insurance products. If you join USAA for a VA loan or any other reason, be sure to shop its insurance products to compare if you have auto, home, or other insurance elsewhere.

#3 Navy Federal Credit Union

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Courtesy: Navy

Navy Federal Credit Union received J.D. Power's highest score for customer satisfaction among Mortgage Servicers for 2018. Few people are aware that the Department of Veterans Affairs doesn't actually list a minimum credit score requirement; the agency leaves that up to the lender's discretion, which gives lenders more flexibility when it comes to credit qualification.

Most conventional mortgage lenders still choose to abide by set underwriting standards and may be unwilling to consider borderline applications with FICOs of 620 or less. Navy Federal distinguishes itself from its competitors thanks to its willingness to accept and underwrite applications based on less conventional forms of credit verification, including rent payments and monthly utility bills.

#4 Kabbage

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Courtesy: Kabbage

Kabbage is one of the fastest and most flexible lenders for small business owners with lower credit scores. Instead of evaluating you on just your credit score, they look at alternative sources of data on your creditworthiness, such as online sales and shipping data. If your business is an online retail shop, an Amazon store, or other businesses that make sales online, and you have less established credit, Kabbage might be the right choice.

Kabbage requires borrowers to have at least one year in business and a minimum of $50,000 in annual revenues. Kabbage offers small business lines of credit, where you get approved for a certain amount upfront, and then you can borrow as much or as little as you want (up to that credit limit) at any time. You need to repay Kabbage funds within 6 or 12 months, including a percentage fee each month. Since they don’t charge prepayment penalties, you can save money if you pay your loan off early.

#5 Freedom Morgage

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Courtesy: Freedom Mortgage

Freedom Mortgage completed more VA refinances than any other lender in the industry over the past 5 years.

Freedom Mortgage refinanced over $29.6 billion in mortgage debt over the past five years with VA cash-out and streamline refinances. The lender draws the overwhelming bulk of its business from government-backed mortgage lending under both the VA and FHA programs, demonstrating a competitive advantage in this field.

Freedom Mortgage features streamline and cash-out refinances under each of the big three government agencies, including the FHA, USDA and the focus of our roundup, the Department of Veterans Affairs. The VA streamline refinance is a fast, easy way to take advantage of lower rates while minimizing the need for many of the major checks that can delay your closing, including standard appraisals and full income verification. This eliminates much of the time and expense associated with refinancing and makes it easier to qualify if you're facing credit issues.

The Bottom Lines

Veterans face unique challenges when securing funds to start or expand their businesses, especially if they lack a lengthy credit history or haven’t been in business for very long.

For most service-members and veterans who qualify, a VA business loan is one of their most valuable benefits and a no-brainer over other, traditional mortgage types. This article may offer you an in-depth explanation of the VA business loan process and instructions on how to apply and the most common VA business loans.

This article is also credited to Veterans United.

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