Small-Business Loans for Veterans: 6 Funding Options
Finding a small-business loan can be tough for any entrepreneur. Bad credit, a lack of collateral and limited business history may all pose obstacles. Funding may be an even bigger challenge for U.S. military veterans, whose financial history may have gaps because of their time in active service.
Even so, many veterans decide to become their own boss after serving their country. About one in seven veterans is self-employed or a small-business owner, according to the Institute for Veterans and Military Families at Syracuse University.
To help overcome the financing hurdle, we’ve rounded up some of the best small-business loan options for veterans.
Carefully weigh the terms, interest, fees and speed of funding before making a decision. You can compare fees and other factors with NerdWallet’s interactive small-business loans tool.
You have poor personal credit
Your business earns at least $60,000 in annual revenue
You need short-term financing
For startups and younger small businesses, lenders typically base lending decisions on the owner’s personal credit — not the business. This could be an issue for veterans who did not get a chance to build their credit during military service.
Although online lender Kabbage checks your credit history, the lender does not have a minimum credit score requirement and does not weigh your credit score as heavily as other factors, such as average monthly revenue and years in business.
Kabbage offers a line of credit of up to $100,000. With a repayment term of just six or 12 months and a high APR of 20% to 113%, Kabbage is a better option for short-term needs, such as buying inventory or for working capital, rather than for big investments like buying equipment or making renovations.
OnDeck offers the best business loan for veterans if:
You need a business loan fast
You have a personal credit score of at least 500
You have at least $100,000 in annual revenue
OnDeck is a good option for veteran business owners who need fast cash, as the company’s online application can be completed online in just 10 minutes. OnDeck term loans provide from $5,000 to $500,000; its lines of credit, up to $100,000.
Besides meeting the lender’s requirements for revenue, credit score and years in business, your company also must not be on OnDeck’s restricted industries list, which includes real estate brokers, tax preparation services, travel agencies and attorneys. While OnDeck doesn’t require collateral on its loans, borrowers should take note that for its term loan, OnDeck takes a blanket lien on all business assets. You’ll also need to sign a personal guarantee, which makes you personally liable for repaying the loan if your business fails to.
Lending Club offers the best business loan for veterans if:
You have at least $75,000 in annual revenue
You have no recent bankruptcies or liens
You own at least 20% of your business
Lending Club is a good option for expansion capital. The company’s loans offer numerous benefits, including competitive rates with APRs from 8% to 32%, less stringent qualifications than banks, and no prepayment penalty. Only loans and lines of credit above $100,000 require collateral.
In addition, borrowers can prequalify and get a quote in just five to 10 minutes, with no effect on your credit score (it only counts as a “hard” inquiry if you’ve been approved and take on the loan).
Funding Circle offers the best business loan for veterans if:
You make at least $150,000 in annual revenue
You can provide collateral and have strong personal credit
You want to start a franchise
There are more than 66,000 veteran-owned franchise businesses in the U.S, with one out of every seven franchises owned and operated by veterans, according to VetFran, an initiative supporting franchising opportunities for veterans.
The International Franchise Association says the top five franchise industries for veterans are services, senior care, home services, advertising and marketing, and food industries, and the top 101 franchises for veterans require a median upfront investment of just over $100,000, according to Franchise Business Review.
One potential way to start or expand a franchise is by taking out a small-business loan through Funding Circle, which provides term loans of $25,000 to $500,000. The company’s founders started a chain of franchised gyms themselves, and Funding Circle has partnerships to help finance franchises with Papa John’s, Domino’s, Fatburger and Robeks.
On the downside, qualifying may be more difficult due to the credit and revenue requirements, and funding typically takes a bit longer than with other online lenders.
SmartBiz offers the best business loan for veterans if:
Your personal credit and company revenue are strong
You’ve been in business for at least two years
You can provide collateral
You don’t mind waiting a little longer for funds
SmartBiz provides SBA loans from $30,000 to $350,000, with some of the best rates in the industry at just 7% to 8% APR. With low costs and a repayment timeframe of 10 years, it’s a solid option for growth financing, such as purchasing real estate or equipment, refinancing high-interest debt or acquiring another business.
Strong personal credit and annual revenue are needed to qualify, and borrowers cannot have prior defaults on government-backed loans, outstanding tax liens, a criminal record other than minor vehicle violations, or any bankruptcies or foreclosures in the last three years.
Keep in mind that although SmartBiz says most loans take only a week or two to fund after you complete the application, loans more than $150,000 typically take four to six weeks to fund.
Prosper offers the best business loan for veterans if:
You’re a startup with no operating history
You have strong personal credit
Getting a small-business loan is tough for most startups, as banks typically require an established business track record and collateral to back the loan (such as real estate or equipment), which startups often lack.
With unsecured personal loans through Prosper, approval is based on your personal credit rather than the merits of your business, so it’s a good option for military veterans. You can also repay the loan early at any time to save on interest, with no prepayment penalties. To qualify, you must have a bank account, a Social Security number and a personal credit score of at least 640.
On the downside, borrowers should note that since Prosper is technically a personal loan, it will not help your business build its own business credit score. If you default on the loan, you’ll be personally liable for the debt and it will ding your personal credit.
Small-business loans for veterans: The bottom line
If you’re a veteran looking for a small-business loan, online lenders can fill the funding gap left by banks. But it’s essential to compare the terms and costs of each loan before making a decision. For veterans-turned-entrepreneurs, check out these grants and other resources for veterans.
Find and compare small-business loans
NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
This post has been updated. It was originally published on Oct. 5, 2015.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
