Veterans are natural entrepreneurs. As a group, they are disciplined, resourceful, and accustomed to performance in adversity. Nearly 1 out of every 10 small businesses are veteran-owned. And a study from the Small Business Administration found that veterans are 45% more likely to start a business than non-veterans. But when it comes to finding small-business funding for veterans, it can be a real challenge.
According to research from SCORE – a national non-profit organization of retired executives that provides 1-to-1 mentorship to small business owners, veterans historically have trouble getting access to business credit. The most common reasons cited are insufficient credit history and insufficient collateral.
Cash flow challenges are the number one killer for small businesses of all types. According to research from U.S. Bank, 82% of small business failures can be traced to poor cash flow, and 79% of failures involve simply being undercapitalized. That is, the business didn’t have enough cash or credit available to weather an unexpected setback.
Whether you are financing a brand-new startup, or plan to expand an existing business, here are some things veterans considering small business funding should consider before committing:
Debt or Equity?
These are the two types of small business funding. With debt, you retain ownership. You must pay the loan as agreed, but you don’t give up control and don’t have to share gains. With equity, you give up a portion of your future earnings.
Enroll in the Transition Assistance Program
If you’re still in the military, take full advantage of your installation’s Transition Assistance Program, or TAP. You can select an entrepreneurship track, which helps transitioning veterans learn the basics of funding and running a business while they’re still in the service.
Build your Credit Score
Veterans often start out at a disadvantage when it comes to credit scores and homeownership. But many traditional bank lenders rely very heavily on personal credit scores when underwriting business loans. The best thing you can do is pay your existing credit accounts on time, without fail. Get organized, because according to the Fair, Isaac Corporation, a track record of on-time payments is the number one factor in calculating your credit score.
Have a Plan for the Money
Before you borrow a dime, have a specific plan for the money. Is it for equipment? Inventory? Payroll? How much do you need? What is the expected return on that investment? Does it exceed the interest rate on the loan?
Choose the Right Lender
Choose the lender that best suits your situation. Traditional lenders, such as commercial banks, may have low interest rates. But they also tend to have stricter credit requirements, rely heavily on FICO scores, and have and longer approval times.
Online lenders have slightly higher interest rates – but much faster approval times, with less documentation required.
What are the Terms?
Be sure you look at the precise terms of the loan:
- Is there an up-front guaranty fee?
- What is the interest rate, and how is it calculated?
- Can you afford the payments?
- Is there a balloon payment due?
- Are you signing a personal guarantee?
- What collateral is needed?
- Is there a pre-payment penalty?
- Is it a revolving line of credit?
- Do they have programs for veterans? (Have your DD-214 ready when you apply).
Don’t Go It Alone
- Veterans understand the importance of teamwork. Don’t try to do everything by yourself. Get some mentorship and coaching from people who’ve been in your shoes. Here are some important resources:
- SCORE.org is a non-profit network of retired executives that provides one-to-one mentorship and coaching for small business owners nationwide.
- Boots to Business is another organization under the auspices of the Small Business Administration and the DoD Transition Assistance Program specifically to help veteran entrepreneurs.
- VETRN.org provides veteran business owners and families a free, six-month course in strategic business planning, business cash flow, and financial management
- The SBA’s Veterans Business Outreach Center Program (VBOC) consists of 22 centers nationwide that provide business training, counseling, and resource partner referrals to veteran entrepreneurs and their spouses.
- The Entrepreneurship Bootcamp for Veterans program (EBV) offers cutting-edge experiential training in entrepreneurship and small business management to post-9/11 veterans with service-related disabilities.
To learn more about small business funding for veterans, download The Complete Veteran Business Owner Resource Guide.
For immediate consideration, you can apply for funding now. It takes less than 30 seconds.