Best Small-Business Loans for Veteran-Owned Businesses

For veteran business owners with bad credit: OnDeck and Kabbage

Getting a small-business loan can be a challenge for any entrepreneur: a lack of collateral, poor or no credit and limited business history all can pose obstacles.

The difficulties may be more pronounced for veterans, whose financial history may show gaps due to their time in active service. Even so, many U.S. veterans choose to become their own boss after serving their country.

U.S. Census Bureau data show that veteran-owned businesses generated $1.47 trillion in revenue in 2012 and employed more than 5.5 million people. And about one in seven veterans is self-employed or is a small-business owner, according to a report by the Institute for Veterans and Military Families at Syracuse University. (The university also originated the EBV program, or Entrepreneurship Bootcamp for Veterans With Disabilities, to help veterans launch their own businesses.)

One of the major obstacles that veterans encounter when opening a business is financing. We’ve rounded up some of the best small-business loan options for veterans. It’s important to carefully weigh the terms, interest, fees and speed of funding before making a decision. You can compare fees and other factors on the NerdWallet small-business loans page.

For veteran business owners with bad credit: OnDeck and Kabbage

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.

Alternative lender OnDeck requires a minimum personal credit score of 500 to qualify. You need to have been in business at least one year and have $100,000 in annual revenue during the last year.
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.

Keep in mind that Kabbage and OnDeck loans can be expensive, so borrowers should carefully consider all financing options.

For veteran-owned businesses that want to expand: SmartBiz and Lending Club

SmartBiz is a solid option for expansion financing, as the company originates SBA loans at a much quicker pace than traditional banks, and at similar costs. To qualify, you’ll likely need good personal credit (600 or higher) with no recent bankruptcies or foreclosures and at least two years of operating history; no collateral is required on loans of less than $25,000.

Businesses with lower annual revenue ($75,000 minimum) can apply for a loan through Lending Club, with no collateral required on loans under $100,000. Lending Club also offers competitive rates for borrowers with good credit.

For franchises: Funding Circle

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. The company’s founders started a chain of franchised gyms themselves, and Funding Circle has partnerships with Papa John’s, Domino’s, Fatburger and Robeks to help finance your own franchise.

For startups: Prosper

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. To qualify, you must have a bank account, a Social Security number and a personal credit score of at least 640.

Business credit cards are another option for startup funds, as approval is based solely on the borrower’s personal credit score. Compare the pros and cons of Prosper and business credit cards before making a decision.

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 all the terms and costs of each loan before making a decision.

SEE ALSO: SBA Loans: Is the Hassle Worth It for Your Small Business?