Everything You Need to Know About SBA Loans for Veterans
The Small Business Administration believes that veterans are essential in boosting local economic development in communities throughout the nation. To enable more veteran-owned small businesses to access funding, the SBA offers the SBA Veterans Advantage initiative, which reduces certain loan fees for veteran borrowers.
Understanding SBA Veterans Advantage loans
SBA Veterans Advantage loans are SBA 7(a) loans of up to $5 million with drastically reduced fees. These small business loans provide term or revolving credit for new or existing businesses, can be used for a wide range of business purposes, and are especially useful for businesses that aren’t able to access conventional financing. Veterans Advantage is most focused on a certain sub-type of the 7(a) loan, SBA Express, which is the most common type of 7(a) loan disbursed. These loans go up to $350,000 and have lowered barriers to access and a response time of 36 hours from application. This has been the most popular SBA loan for veterans since its inception. Almost three-quarters of SBA loans that go to veterans are $350,000 and below.
In years when there is no subsidy for the 7(a) loan program, the upfront “guaranty fee” is waived on certain loans to veterans and/or their spouses. The fee relief available for each fiscal year is published in an official notice. In fiscal year 2018, veterans pay zero upfront “guaranty fee” on 7(a) loans of $125,000 or less and on all SBA Express loans, and receive discounts on non-SBA Express 7(a) loans above $125,000. To learn more about the reduced cost of these loans, see “How much will a Veterans Advantage loan cost?” below.
Veterans Advantage loans can be accessed by qualified veterans, active-duty personnel, and their spouses. To qualify, you must meet all the eligibility requirements of 7(a) loans, plus be one of the following: a veteran with anything other than a dishonorable discharge, a service-disabled veteran, an active-duty military service member participating in the Transition Assistance Program (TAP); a reservist or National Guard member; a current spouse of a veteran, active-duty service member, a reservist, or a National Guard member; or a widowed spouse of a service member who died while in service or of a service-connected disability. Proper documentation of service is required.
Pros & cons of Veterans Advantage loans
- The SBA offers reduced fees for veterans borrowers under the SBA 7(a) program.
- Veteran borrowers get to work with lenders who understand their unique circumstances and needs.
- Veteran borrowers who are unable to access traditional sources of business funding can get working capital to grow their businesses.
- As with other SBA loans, borrowers must exhaust their other potential funding options before applying.
- The application procedure is lengthy and requires extensive documentation, both about the business to be funded and the veteran’s status.
Is a Veterans Advantage loan right for you?
Who/what type of business are they best for
To qualify for Veterans Advantage loan, a business must be 51 percent or more owned and controlled by an individual or individuals who qualify as one or more of the following:
- Veterans (other than dishonorably discharged);
- Service-Disabled Veterans;
- Active Duty Military service member participating in the military’s Transition Assistance Program (TAP);
- Reservists and National Guard Members; or
- Current spouse of any Veteran, Active Duty service member, or any Reservist or National Guard member; or widowed spouse of a service member who died while in service or of a service-connected disability.
Who/what type of business should avoid a Veterans Advantage SBA loan?
Veterans Advantage fee relief is only available for businesses that meet the eligibility criteria listed above.
Shopping for Veterans Advantage loans
Any lender who participates in SBA’s 7(a) loan program may administer a 7(a) loan with the Veterans Advantage fee relief, as stipulated for the current fiscal year. How much fee relief they can offer depends on the amount and maturity of the loan. To make SBA Express loans to veteran-owned businesses, 7(a) lenders must be authorized as SBA Express lenders. Borrowers can find guidance from their local district office on finding qualified and certified local lenders.
Applying for a Veterans Advantage loan
A 7(a) loan that includes Veterans Advantage fee relief is obtained by the same application process as general 7(a) loans. Borrowers will work with their lender to ensure they are applying correctly.
Veteran borrowers must certify their status using copies of the following documentation when requesting a loan from the SBA.
- Veteran: Copy of Form DD 214, which is provided for other than dishonorably discharged veterans.
- Service-Disabled Veteran: Copy of Form DD 214 or documentation from the DVA that the veteran has been determined as having a service-connected disability. (If DD 214 is unavailable, a “Certification of Military Service” (NA Form 13038) can substitute.)
- Transitioning Active Duty Military Member: DD Form 2, “U.S. Armed Forces Identification Card (Active),” or DD Form 2, “Armed Forces of the United States Geneva Conventions Identification Card (Active)” and, DD Form 2648 (Active Duty Military member) or DD Form 2648-1 (Reserve Component member ).
- Reservists and National Guard: DD Form 2, Armed Forces of the United States Identification Card (Reserve).
- Current Spouse of Veteran: The veteran’s Form DD 214 and evidence of status as a current spouse. (If DD 214 is unavailable, a “Certification of Military Service” (NA Form 13038) can substitute.)
- Current Spouse of Transitioning Active Duty Military Member or Current Reservist/National Guard Member: DD Form 1173, Department of Defense Guard Reserve Family Member Identification Card and proof of status as the current spouse.
- Widow of Active Duty Service Member who died in service or Widowed Spouse of Veteran who died of a service-connected disability: Documentation from DOD or from DVA with explicit proof of the situation.
If a photocopy of a military ID is unavailable, the applicant may instead provide a “statement of service” signed by, or by the direction of, the adjutant, personnel office, or commander of the unit or higher headquarters they are attached to. The statement of service must clearly show:
- The Servicemember’s full name;
- The Servicemember’s Social Security Number (SSN) or the last 4 digits of SSN;
- The entry date on active duty or the entry date of applicant’s Reserve/Guard duty, as applicable (depending on whether the applicant is on active duty or is a current member of the Reserves or National Guard);
- The duration of lost time, if any (for active duty); and
- The name of the command providing the information.
- For current reserve or National Guard members, the statement must clearly indicate that the applicant is an “active” reservist and not just in a control group (inactive status).
How much will a Veterans Advantage loan cost?
Veteran Advantage loans are 7(a) loans, which are more attractive than many other financing options due to their longer terms and lower down payments. The SBA caps interest rates on these loans and establishes specific eligibility and collateral requirements. 7(a) loans below $25,000 don’t require collateral, and lenders are permitted to use their existing collateral policy for loans over $25,000. Veterans with these loans pay the interest rates that apply to all borrowers, but they get the advantage of a reduced fee schedule due to their veterans status.
SBA Express loans of $350,000 and below for qualified veterans under this initiative come with a zero upfront guaranty fee. For non-SBA Express 7(a) loans, the details of fee relief for veterans is announced each fiscal year.
In fiscal year 2018, on non-Express 7(a) loans of $125,000 and less, qualified veteran borrowers pay zero upfront guaranty. For non-SBA Express 7(a) loans from $125,001 to $350,000, they get a 50 percent reduction in the upfront guaranty fee, which depends on a loan’s maturity. For maturity greater than 12 months, veteran borrowers pay 1 percent of the guaranteed portion on loans $125,001-$150,000, and 1.5 percent of the guaranteed portion for loans $150,001-$350,000. For loans between $150,001-$350,000 with a maturity less than 12 months, veteran borrowers pay a 0.125 percent up-front guaranty fee of the guaranteed portion.
For loans above $350,000 with a maturity that exceeds 12 months, the guaranty fees depend on the amount. For loans of $350,001-$700,000, veteran borrowers pay 3 percent of the guaranteed portion of the loan, and they pay 3.5 percent of the guaranteed portion for loans above $700,000, plus 3.5 percent of the guaranteed portion over $1,000,000. For loans above $350,000 with a maturity of 12 months or less, the guarantee fee is 0.25 percent of the guaranteed portion.
In FY18, for all 7(a) loans to veteran-owned small businesses, the annual service fee is 0.55 percent of the guaranteed portion of the outstanding balance of the loan.
Other SBA resources for veterans
The SBA offers several other resources to help veterans with small businesses and employers who employ reservists. The Office of Veterans Business Development lists a large set of programs and resources. Some of the most prominent are:
Veterans Business Outreach Centers (VBOCs) provide entrepreneurial development services for eligible veterans who own or are considering starting a small business. There are organizations around the country that serve as VBOCs through a cooperative agreement with the SBA. They provide services such as business plan workshops and preparation, feasibility analysis, entrepreneurial training and counseling, mentorship, concept assessments, and training areas such as international trade, franchising, marketing, and accounting.
Boots to Business (B2B) is an education and training program for business ownership. SBA offers B2B as part of the Department of Defense’s Transition Assistance Program (TAP), and it is available to transitioning service members (including National Guard and Reserve) and their spouses.
The Military Reservist Economic Injury Disaster Loan Program (MREIDL) provides funding to eligible small businesses that are unable to meet ordinary and necessary operating expenses due to the absence of an essential employee who is called into service as a military reservist. The maximum MREIDL amount is $2 million over 30 years, and the interest rate is capped at 4 percent per year.
The SBA’s Veterans Advantage loan initiative is a good fit for veterans and their spouses who are looking for general business funding at affordable rates and have not been able to access that capital from traditional business funding sources.