What is an SBA Loan for Veterans?
SBA loans are loans secured by the Small Business Administration (SBA), meaning the SBA will provide a significant amount of the loan payment if the borrower is unable to pay. The SBA has set up advantages on certain loans specifically for veterans, as military service tends to cause gaps in credit history, creating added difficulties for veterans looking to take out loans. Thanks to this program, veterans are able to take out SBA express loans of up to $350,000, and SBA 7(A) loans for amounts less than $125,000, without the normal upfront guarantee fee of 3% of the loan amount. For SBA 7(A) loans of amounts greater than $125,000, the SBA reduces guarantee fees by 50%. Both the removal of this fee and the security of SBA-backing (guaranteeing a significant portion of the payment in case of a default) make taking out a loan easier for veterans looking to expand their business. In 2013, a total of $1.86 billion was given out for over 3,000 small business owned by veterans. The SBA also provides business training and counseling to veterans, creating more opportunities for development.
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SBA loan rates vary depending on the type of loan. For SBA express loans, rates run anywhere between 4.5% – 6.5% above prime, while for SBA 7(A) loans rates can be as high as 2.75% above prime.
SBA credit requirements will depend on the type of loan and the loan amount. For express loans, for example, borrowers with credit scores between 600 – 650 will generally be eligible for loans between $30,000 – $150,000. For loans over $150,000, applicants will need a score above 650, and scores of 680 or higher will likely open borrowers up to maximum amounts, depending on other details of their financial standing.