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What is a VA Small Business Loan?

A VA small business loan is a government-backed loan for a small business owned by a veteran or other qualifying military personnel. While the name suggests that these loans are backed by the Department of Veteran Affairs (VA), most of these loans are made possible by the Small Business Administration (SBA). The loan most commonly referred to as a VA small business loan is the Patriot Express Pilot Loan Initiative, this was a pilot projected which ran from 2007 to 2013. The purpose of this program was to make it easier for veterans to start a small business after their military career was over. They did this by guaranteeing a percentage of loans taken out by qualified veterans. Guaranteed loans have lower credit requirements and lower rates than traditional loans. The other loan which is sometimes referred to as a VA small business loan is the Military Reservist Economic Injury Disaster Loan (MREIDL). The MREIDL is designed to help small businesses which lose an essential employee due to a military call-up. The loan helps provide working capital to the business can survive while adjusting to the absence of the missing employee.

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Eligibility Requirements

To be eligible for an MREIDL your business must have lost an essential employee (this employee could be one of the owners themselves), due to a military call-up. Since taxpayer money funds this loan it is only given out in situations that the SBA has determined that the business could not get sufficient financing from other means without creating undue financial strain. The business must have good enough credit for the SBA to be confident the business will pay them back. The SBA will ask for collateral on any MREIDL loan over $50,000. However, no borrower is turned down due to lack of collateral. The business must keep all of the appropriate forms of insurance for the duration of the loan.

Rates (%)

While most loans have interest rates which vary with the business conditions of the borrower and the economic climate the loan is made in, MREIDLs have a fixed interest rate of 4%.

For Bad Credit

MREIDLs are not granted to businesses with bad credit. The Patriot Express Pilot Loan Initiative did offer options for veterans with less-than-excellent credit. Unfortunately, the program was not renewed in 2013, so veterans are left with the same financing options as civilians with bad credit. SBA backed loans tend to have lower credit requirements because the SBA guarantees a portion of the loan. Microloans tend to have lower credit requirements than full-sized loans since microloans are so small lenders can grant them without risking large-scale loss. There are specially designed credit builder microloans, which have very low credit requirements and help to improve your credit history. A business credit card is another means to improve your credit. The Veterans United Lighthouse Program is designed to help veterans improve their credit rating.

For Startups

There are no official guidelines for how long business needs to exist to qualify for an MREIDL. However, the business needs enough history to determine that the employee who is called-up was essential to the business. The SBA also requires enough information to be assured that the loan will be repaid. These factors make it unlikely that an MREIDL will be granted to a startup. The Patriot Express Pilot Loan Initiative had been designed in part to help veterans create startups. However, since this pilot program ended, there have been no government loan programs geared towards veterans. There are several SBA backed loans which work for startups. Some of these are available to all US citizens. Others like the SBA 8(a) loan are only offered to people who are socially or economically disadvantaged. Disabled veterans may qualify for the SBA 8(a) program. Crowdfunding, through sites like Kickstarter or Kiva, is another financing option for a startup. If you are a veteran, this may make your backstory more appealing to those who might finance you.

How to Get a VA Small Business Loan

To get a Military Reservist Economic Injury Disaster Loan, first, you should check if you meet the basic eligibility requirements. If you feel like you meet these requirements, you can email the Disaster Assistance Customer Service Centre at disastercustomerservice@sba.gov, and they will send you an application. When the application is complete, you can mail it to U.S. Small Business Administration Processing and Disbursement Center 14925 Kingsport Road Ft. Worth, TX 76155-2243 After they receive your application, the SBA will assess if you are qualified to get a loan from another source. They will also determine if you are likely to be able to repay the loan or not. If you qualify, they will decide how large of a loan you need and what collateral they will ask you to offer.

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