As per the Annual Business Survey(ABS) conducted in 2019, veteran-owned businesses make up 5.9%(337,934) of all US-based businesses (source: census.gov). Veterans own businesses in finance, transportation and warehousing, mining, construction, professional and technical services, manufacturing, wholesale trade, agriculture, forestry, fishing, utilities, and even real estate. Though some start and grow their businesses with their personal savings and monetary help from friends and families, those with limited capital often look out for business finances to kickstart their dream ventures and thrive in today’s highly competitive business environment.

The U.S. Small Business Administration(SBA) has multiple lending programs, especially for veterans and their spouses. Veteran-owned businesses can avail of Veteran Affairs small-business loans, that refer to the SBA’s Veterans Advantage program. SBA Express loans, under the above-mentioned program, waive upfront guarantee fees for veterans and their spouses. The program was launched in 2014 and made permanent by the 2020 CARES Act. To qualify for the loan, a business must be at least 51% owned by veterans or their spouses. However, in the case of SBA express loans, credit score, revenue, and the age of the business also determine the creditworthiness of the applicant. Up to $500,000 can be borrowed through this loan program, which waives the guarantee fees, i.e., 2-3% of the loan, for qualified veterans, reservists, national guard members, and their spouses. To meet the underwriting criteria, applicants must have a FICO score of 650 or above, considerable annual revenue, and a trade history of at least 2 years. Besides, SBA has other finance programs like SBA7(a) loans, which are issued by banks, credit unions, and online lenders, but partially guaranteed by the SBA.
Small business loans for veterans are also available through community financial institutions, traditional banks, and online and alternative lenders. Though bank loans come with the lowest interest rates, veteran-owned start-ups and small businesses with low credit scores often fail to acquire those due to the strict underwriting criteria of these traditional lenders. Alternative lenders are comparatively flexible in terms of credit score and business age requirements. Today, fintech companies offer various types of business finances, in the case of which, the application process is quicker and simpler, minimum paperwork is required and most importantly, approval is given in hours, and funds are disbursed as fast as within 24-48 hours of the approvals. Popular alternative financing options include business Lines of Credit, business credit cards, Merchant Cash Advances(MCAs), invoice factoring, and crowdfunding.

Small business loans for veterans are also available through community financial institutions, traditional banks, and online and alternative lenders. Though bank loans come with the lowest interest rates, veteran-owned start-ups and small businesses with low credit scores often fail to acquire those due to the strict underwriting criteria of these traditional lenders. Alternative lenders are comparatively flexible in terms of credit score and business age requirements. Today, fintech companies offer various types of business finances, in the case of which, the application process is quicker and simpler, minimum paperwork is required and most importantly, approval is given in hours, and funds are disbursed as fast as within 24-48 hours of the approvals. Popular alternative financing options include business Lines of Credit, business credit cards, Merchant Cash Advances(MCAs), invoice factoring, and crowdfunding.

However, finance seekers must compare multiple financing options and select the one that best suits their business requirements. Though online lenders offer funds with more favorable terms than credit unions, a loan seeker must also consider the latter, which often offers extra perks and discounts to the members. Also, one must decide whether he/she wants a lump-sum amount or funds in small portions, as the need arises. Before choosing a financing option, a loan seeker must get a clear idea about the lender’s fee structure, customer support service, and additional fees, if any.

3 Most popular alternative financing options for veteran-owned businesses:

Merchant Cash Advances (MCAs)

This type of financing is ideal for businesses that mostly process credit card transactions because MCA lenders provide funds in return for a percentage of the future credit card sales of the borrower. The payable amount is directly withdrawn from the borrower’s business account daily, till the entire amount is recovered. MCA lenders, unlike traditional lenders, are quite lenient in terms of credit score requirements. Instead, they primarily consider the business’s income of the last 6 months to 1 year to be sure of the borrower’s repayment capacity. However, MCAs are often considered less burdensome for veteran-owned small seasonal businesses like agriculture, etc., as the repayment amount is not fixed and varies with the income of the businesses. The payable amount is less during slow business seasons and more during peak seasons. Also, MCAs are known as same-day financing options as approvals are given in hours, and funds are disbursed within 24 to 48 hours of approvals. Due to their flexibility and lenient approval requirements, MCAs are a great financing option for start-ups as well.

Business Lines of Credit

Business lines of credit are ideal for businesses that are facing temporary cash flow issues. Similar to business credit cards, these approve a certain credit limit, from which the borrower can withdraw the amount they need and save up the rest for future use. Besides, interest needs to be paid only on the withdrawn amount and not the entire approved limit. Another thing that makes business lines of credit convenient is that it offers revolving credit, i.e., the gap created by the withdrawn amount can be filled by repaying the amount and the same amount or more can be withdrawn again when required. However, this type of financing option is usually not open for start-ups with short trade histories.

Invoice Factoring

Companies that are facing cash flow issues due to a pile of unpaid invoices can opt for invoice factoring. In this case, business owners can sell unpaid invoices at a discounted rate to invoice factoring companies. The business owners get a percentage of the invoice paid upfront. The invoice factoring companies then collect payments directly from the customers and pay the entrepreneurs the remaining invoice amount, after deducting a fee. Invoice factoring companies primarily consider the invoices’ value and the customers’ payment history of the businesses to buy their unpaid invoices.