A Veteran’s Introduction to SBA 7(a) Business Loans

Veterans own about 5.3% of all companies in the United States, generating more than $900 billion in revenue.¹ Military experience can prepare veterans for a successful transition to business ownership. Loans through the SBA 7(a) program are one of the most common ways veteran entrepreneurs fund that next step.

Veterans make outstanding entrepreneurs, but capital remains a hurdle.

Once they're up and running, many veteran-owned companies thrive. One analysis found that veteran-owned companies are 5% less likely to close than the general rate for small businesses.² Roughly 55%-57% of veteran-owned companies are still operating five years in, which is a stronger showing than the national average of about 50%.³ Habits veterans already have — like planning ahead, tracking resources carefully and adjusting quickly when circumstances change — carry over directly into budgeting, cash-flow management and the kind of agile decision-making a growing company needs.

However, capital access is one major challenge that holds back many veterans from getting their companies off the ground. According to the American Legion, 75% of veterans don’t have access to the capital they need to start or expand businesses.⁴ In addition, 72% rely on personal or family savings to support their business ventures versus 62% of non-veterans.⁵

What is an SBA 7(a) loan?

SBA 7(a) is the Small Business Administration’s primary loan program. Rather than lending directly, the SBA guarantees a portion of the loan through approved lenders. This approach lowers the lender's risk and opens the door for companies that might not qualify for a conventional loan on their own. It’s part of what makes the SBA 7(a) program a realistic starting point for a veteran launching a company with limited collateral or a short credit history.

First-time borrowers should understand how much they can borrow, what the SBA may guarantee, how the funds can be used and how long repayment may last.

 

Loan Amounts	Up to $5 million, with the SBA typically guaranteeing 75%-85% of the loan depending on its size
Guaranty by Loan Size	85% of loans $150,000 or less and 75% of loans above that amount
Common uses	Working capital, equipment, real estate, business acquisition and refinancing existing debt
Terms	Up to 10 years for general business purposes and up to 25 years for real estate

Source: U.S. Small Business Administration, “7(a) Loans”

Most SBA 7(a) loans are repaid through regular monthly payments of principal and interest, drawn from the company's ongoing cash flow rather than a lump sum.⁶

The SBA offers veterans business loans and certifications.

The SBA 7(a) program itself doesn't offer different terms for veterans, but a company that's at least 51% owned by a veteran or a veteran's spouse can skip the upfront guaranty fee entirely on an SBA Express loan.⁷ 

You may hear this referred to as “SBA Veteran’s Advantage.” SBA Express is a faster-decision loan under the 7(a) umbrella, capped at $500,000 rather than the full $5 million available through a standard SBA 7(a) loan.⁸ This is a one-time savings on the upfront fee, not a reduced interest rate. The SBA Express loan is a permanent part of the 7(a) program, renewed in each year's fee notice. Check the SBA's latest fee notice to confirm it's in effect before you apply.

Beyond loans, the SBA also offers veteran-owned and service-disabled veteran-owned small business certification. That certification doesn't affect lending, but it can open the door to federal contracts set aside for certified veteran-owned companies.⁹

How can veteran business owners improve their chances of SBA loan approval?

Even a well-prepared applicant can run into preventable issues. Address potential obstacles in advance to increase your chances of loan approval. 

• Thin credit history
  Building business credit early and keeping company transactions separate from your personal finances gives a lender a clearer track record to evaluate. Opening a dedicated business checking and savings account, as well as a business credit card are the simplest ways to start building your company's financial credibility.
  
  
• Underestimating cash flow
  Develop a conservative financial forecast before applying; realistic projections are more credible to lenders than optimistic estimates created only after questions arise.
  
  
• Going it alone
  A financial advisor, SCORE mentor or banker can catch gaps that a first-time business owner might otherwise miss.

Prepare a strong SBA 7(a) application.

Completing your SBA 7(a) application takes time, and knowing the path ahead makes the process easier to manage. A stronger application starts with clear funding needs, organized documentation and preparation for lender review.

1. Define the need.
   Be specific about how much funding is required and exactly what it will fund, such as startup costs, equipment, working capital or a business acquisition. A precise cost breakdown makes it easier for the lender to evaluate your application.
   
   
2. Check eligibility.
   Confirm that your company operates for profit, is based in the United States and falls under the SBA's size limit for its industry, based on either annual revenue or employee count.¹⁰
   
   
3. Gather the paperwork.
   Lenders typically want a business plan, financial projections, personal and company tax returns, and a personal financial statement. Having these ready from the start helps everything else run smoothly.
   
   
4. Find an SBA-approved lender.
   Not all banks offer SBA financing. A lender with SBA lending experience can help match the right SBA 7(a) loan type to your company and walk you through the process.
   
   
5. Prepare for underwriting review
   Expect a credit review and questions about collateral. Full collateral isn't always required, but lenders will still want a clear picture of what's available and how you will repay the loan if the company hits a rough patch. Plan how to address common obstacles during underwriting.

Explore financing options for your veteran-owned company.

If you're a veteran interested in starting a company, securing the financing you need to bring your business concept to life requires finding the right financial partner.

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