By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
We discuss SBA loans for veterans here, with an aim of giving veterans a realistic overview of what to expect and how the program works.
Via the SBA Patriot Express Loan Program banks and other lenders offer financing for veterans to start or expand businesses. Probably the most important thing for you to understand is that these loans are underwritten and funded by banks, not the SBA… The SBA does NOT lend money; they act like an insurance company for banks. I.e. banks get their capital back, should the borrower default, from the SBA. You are applying for a loan from a bank and have to meet the banks underwriting parameters.
So the point is you may have read or heard some really positive things from/about the SBA, but until you have a bank that will do your loan, you don’t have much. Find a bank that specializes specifically in the SBA Patriot Express Program, in your area, and sit down with them. Don’t bother talking or reading more material from the SBA.
Terms – SBA Loans For Veterans
Here’s an overview of the basic terms you can expect:
- Loan amount up to $500,000
- Rates are normally tied to Prime, adjusting quarterly. The margin that banks charge ranges from 2.25% to 4% OVER the Prime rate. For example as of this writing Prime is at 3.25% so if the bank charged you a 3% margin, your actual interest rate would be 6.25%.
- The amortization schedule depends on what collateral you have to use for the loan and what you’re doing with the money. I.e. are you using the money for working capital, to buy a building, inventory, etc? But most of these loans are amortized over 7 to 10 years.
- 85% financing is the normal cap of the total project costs.
- Fees for the SBA range from 2% to 3%. Loans less than $150,000 the fee is 2% over is 3%
This program is very similar to the SBA 7a loan program which is the most popular loan from the SBA. Though the fees are slightly higher with the 7a, the rate is lower. Also, there are many more banks that offer the 7a so your pool of lenders will dramatically increase. So you might try that route as well.
Question For Veterans to Ask Themselves
Do you really need to borrower money to start or expand your business??? Have you considered trying more of a bootstrap approach? Can you get going without borrowering money? Keep in mind you’ll most likely have to pony up all of your assets such as your house with SBA financing. If the business fails you’ll have a big mess to clean up and everything you own will be on the line. And just because you’re a vet doesn’t mean anything to a bank that wants their money back. They’ll chase you for years regardless of what you did for this country. Not trying to be pessimistic here, but as bankers that have seen the good and bad of lending, we want to throw in our opinion. So bottomline, if you know what you’re doing, go for it. If you don’t, don’t.
Note, we are NOT currently offering any start up loans in general or SBA loans for veterans via the SBA Patriot Express Loan program. This page is merely meant to be informational to the benefit to the reader.