Small Business

What is a VA small business loan?


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Looking for a VA loan? American veterans own 2.5 million small businesses, according to the U.S. Small Business Administration (SBA). They employ 5 million people and generate more than a trillion dollars in revenue.

It’s important to understand that VA loans are administered by the SBA. If you have served your country and own a small business—or want to start one—the SBA has a couple of programs that could save you thousands of dollars in business loans.

Small business loans for veterans

SBA loans for veterans are the same as regular SBA loans: private lenders make the loans, and a portion of the loans are guaranteed by the federal government. You can use the money to start a business, pay operating expenses, buy equipment or real estate, even pay down higher-interest debt. To insure against inevitable bad loans, the SBA charges origination fees to borrowers. But under the Veteran’s Entrepreneurship Act of 2015, the SBA eliminates or reduces by half the origination fees charged to veterans, depending on the size of the loan.

For loans up to $125,000 the fee for veterans is zero; up to $150,000 the fee is 1 percent of the guaranteed portion (that’s half what non-vets pay); up to $350,000, veterans pay 1.5 percent, also half the regular rate. The bottom line is a veteran can save as much as $5,250 in SBA loan fees.

You’ll want to act fast: Unless Congress reauthorizes the program, the veterans’ discounts are set to expire on Sept. 30, 2018.

Are you a veteran looking to start a small business? Home equity loans are another great choice.

Who is eligible?

A business must be majority owned by honorably discharged and service-disabled veterans, or active-duty personnel who are transitioning to civilian life. Reservists and National Guard members also qualify. Current spouses are eligible, as are widowed spouses of veterans who died in service or of a service-connected disability.

Not all fees are covered

Some loan fees aren’t discounted under the program. For loans higher than $350,000 (and up to the SBA maximum of $5 million), veterans pay the same origination fee as everyone else—currently as high as 3.75 percent for amounts over $1 million.

Most SBA loans also have an annual service fee of 0.55 percent of the guaranteed portion of the outstanding balance—and veterans get no break on that either.

What About Express Loans?

The above discounts apply to 7(a) loans, which are by far the most popular SBA loans. But veterans also pay no origination fees on SBA Express Loans, which are capped at $350,000. You might think of saving on fees by going for an Express Loan, but be aware that they carry higher interest rates than 7(a) loans, as the government guarantees less—meaning the lending bank is taking a greater risk. The higher interest rate will negate any fee savings. Moreover, while Express Loans speed up the approval process (to within 36 hours), the time required to actually get the money can be just as long as with a 7(a) loan.

Other benefits for veteran business owners

The SBA’s Military Reservist Economic Injury Disaster Loan Program (MREIDL) provides low-interest business loans to cover operating expenses (up to $2 million) when an “essential employee” is called up for active duty in the Reserve or National Guard.

The SBA also offers business mentoring programs for veterans, including classes on military bases, online programs for women vets, and training in how to bid on government contracts. The website of the SBA has detailed information that can help.