If you are a Veteran and want to fund a small business, you have several options. The first step is to check out the Veterans Business Outreach Center, which is part of the U.S. Small Business Administration (SBA). This organization provides training, counseling and resources to Veterans who are interested in starting a small business.
Once you have a plan for your business and know how much money you need to start, you can choose the type of loan that suits you. Here are some options Veteran entrepreneurs can look into for funding their small business.
Cash out refinance of VA loans to fund a small business
One funding option for Veterans is to borrow against their home's equity. This can be done through a cash out refinance of their VA home loans. You replace your current mortgage with a new mortgage for a larger amount and take out the difference in cash to fund your business. Freedom Mortgage offers cash out refinances to Veterans with VA home loans.
Pros of a VA cash out refinance
- Can refinance up to 100% of your home's equity.
- Can roll closing costs into the loan as long as the loan amount does not exceed 100% of your home's equity.
Cons of a VA cash out refinance
- You may not want to combine your business finances with your personal finances.
- If the business fails, you could have trouble paying back the loan.
U.S. Small Business Administration (SBA) Veterans Advantage Guaranteed Loans
Small businesses that are at least 51% owned by Veterans, active duty service members, and spouses of veterans may qualify for guaranteed loans from the SBA. These loans from the Small Business Administration are designed to reduce upfront fees1 and loan processing time, particularly for smaller loan amounts. Veterans should contact their local SBA District Office to learn more about these small business loan opportunities.
Personal or business loans to finance a VA business
Personal or business loans can be used by anyone, including Veterans, to fund a small business. Personal or business loans can come from a bank or credit union. A business loan can separate your personal finances from your business and limit your liability. If you don't yet have a business started, it may be challenging to get approved. You may have to start with a personal loan until you get your business up and running.
Pros of a personal or business loan for financing a VA business
- Fixed interest rates
- Predictable monthly payments
- Can help you grow your company's credit and credibility
Cons of a personal or business loan for financing a VA business
- Interest rates are typically higher than other options
- Need good credit or established credit to get a business loan
- May require more paperwork and a longer processing time
- If you default on a personal loan, it could affect your credit score
- May not be able to get all the money you need with a personal loan
Business credit cards to finance a VA business
If you don't qualify for a personal or business loan, a credit card could help you get quick cash for your small business. Business credit cards are available to anyone, including Veterans. These can be good if you need less than $50,000. There are specific business credit cards with favorable terms like 0% APR for a certain period of time and other rewards or cash back but note they may come with fees. Compare business credit cards from reputable companies to find the best one for your needs. If you decide on a credit card for your small business, make sure you have controls that set spending limits, who can use the card and for what purposes.
Pros of a business credit card for funding a VA business
- Approval is typically fast
- Quick access to cash
- Good for flexible short-term financing
- Pay it off when you can
- 0% introductory financing typically available
- Some cards can offer no fees on balance transfers
Cons of a business credit card for funding a VA business
- If your business can't make the payments, you as the owner will be responsible
- If you don't pay the balance off during the low APR period, the interest rate will increase
- Balances can quickly grow if you don't keep the monthly payments in check
Veterans have many loan options to help fund their small business. Before you dive into a new business opportunity, research the most affordable options that will help your business grow. Speak with a Freedom Mortgage loan advisor to learn more about cash out refinancing of VA home loans.
- 1 See the SBA Information Notice on 7(a) Fees Effective October 1, 2018 published by the U.S. Small Business Administration.