How to Create, Finance and Maintain a Small Business: Essential Guide for US Veterans
Veterans play a significant role in the business world. Their contribution to the USA goes beyond their years of dedicated service. Over 7% of the 5.5 million active businesses with employees are owned by Veterans, according to the latest data from the US Census Bureau. And according to a report from the Small Business Administration (SBA) Office of Advocacy in 2017, Veterans employed over 5 million people with an annual pay of nearly $2 billion, as well as receipts totaling over $1 trillion. It is in the governments best interest to supply Veterans with the proper funding programs as they play a pivotal role in the economy. This is a large reason as to why there are specialized loan programs designed specifically to help Veterans gain access to funding.
Veterans will understand better than most that nothing in life comes easy, and they are more than able to succeed in the world of business, if they can secure the badly needed funding to get them started.
Starting a Small Business
There are many pitfalls to starting a small business. And there are many things to consider before you begin, which include a strategic plan, the brand name, the ownership model, the web presence, management, cash flow, market strategy, market analysis, office space, utilities, and social media. Any of these can lead to failure if not effectively managed, but the most crucial element would have to be the startup costs and the loan. There are also some statistics that you need to take into consideration when embarking on any small business venture, whether you are a veteran or not:
- 50% of small business will survive for more than 5 years (Bureau of Labor Statistics 2016)
- 45% of small business owners find few or no qualified applicants for job positions (NFIB Small Business Economic Trends 2017).
- In 2016, there were 28.8 million small businesses, accounting for 99.6% of total US businesses. (Small Business Administration 2016)
- The biggest hurdle that small businesses face is economic uncertainty, followed by regulatory burdens (National Small Business Association 2016)
- 96% of small businesses use social media, and 92% believe it is critical to their success (Social Media Examiner 2016)
It is a clever idea to familiarize yourself with these types of statistics before you start your business.
When considering whether to pursue a small business, there are some questions that you need to ask yourself. If the answer to any of the questions is not an absolute yes, then you may need to reconsider.
You need to ask whether you are passionate about what you are doing. Passion is a key ingredient and you need to be improving and perfecting your business every single day to succeed. You cannot afford to take a back seat in any industry. Motivation and passion are a prerequisite to success.
Given that you have passion as a key ingredient, the second question you need to ask is if you have a chance of succeeding. Your profit margins need to be high and costs low to cover the many bills of utilities, employees, rent, legal fees, licenses, furniture, and more. And you need to consider the financial surprises that will inevitably crop up. What are the profit margins and is it a niche industry?
If you are setting up a pizzeria in an area with 5 high quality and established pizzerias, then your business will not succeed. There are too many other people with a similar passion in a similar area. If there is no need for your business, you do not have a business. At the very least, it must solve a problem or need better than other existing models.
Financing a Small Business
When considering a small business loan, alternative lenders are more likely to approve the request. According to Biz2Credit, alternative lenders approve 58% of loan requests in comparison to smaller banks (48%) and larger banks (24%). Therefore, your chances of securing a loan are likely to improve if you choose a reliable alternative lender.
Alternative Lenders, Small Banks & Large Banks: % of Approved Requests:
Given the failure rate for small businesses, it helps to secure a loan of some kind to increase your chances, and having some extra security is of paramount importance in any business venture. For Veterans who wish to start a small business, it is essential that they are familiar with the best loan available to them, in the form of an SBA loan.
An SBA loan is a loan given to small business owners by the government through the Small Business Association at a low interest rate. You have a guarantee on your loan on the part of the government, which cuts a lot of risk from the financial institution that issues the loan. It is not technically the SBA that is doing the lending. It is banks and alternative lenders. The government guarantees their loans, so the lending institution has less risk of borrower default. Small businesses have a high failure rate and it is necessary for the government to step in and give a stimulus. Otherwise there would be a risk that small business owners would never get access to finance. The partial guarantee can extend all the way to 85% in some cases.
But these loans can be difficult to buy, and the government provides a very rigorous process with stringent requirements. You will need to find a reliable and stable lender to increase your chances of success. Many applicants can choose the wrong lender and waste months in a restrictive SBA process.
VA SBA Loan
The requirements for Veterans to obtain a Veterans Advantage (VA) SBA loan are less strict than the standard loan, which is a major relief. Through the VA lending program, upfront fee reductions are available to veterans who seek SBA loans. To obtain a VA SBA loan, applicants must own 51% of the business in question and must be either a Veteran, a reservist, a national guard member, a spouse of a veteran or a widow of a veteran.
There is no minimum VA SBA Loan and the average loan is $370,000. The maximum is $5 million. The repayment time for these types of loans can range from 5 to 25 years, but the general repayment time is 10 years. There are three main types of SBA loans. These include the VA SBA Loan, the 7(a) Express Loan and The Military Reservist Economic Injury Disaster Loan Program (MREIDL). These details can be found on the official SBA website.
Other Financial Options for Veterans
While the VA SBA loan is the most widely regarded business loan, there are alternative options available to veterans. Below is a list of Five of the best platforms for small business loans in general. Veterans can make use of these loans, as depending on their personal circumstances it may make more sense. These include:
- Blue Vine – Blue Vine offers a credit line of up to $200,000 which they can extend to you in less than 24 hours. They are a highly regarded platform with an extremely intuitive interface. The fees are transparent and there are no maintenance fees or prepayment penalties.
- Funding Circle – Funding Circle is a peer to peer lending platform. Its focus is on small and medium businesses. Funding Circle is based in the UK. In the USA, you can burrow up to $500,000 online with a term of up to 5 years. It is possible to obtain funding in as little as 5 days and a decision in less than 24 hours.
- FundBox – Like Funding Circle, FundBox can be a straightforward way to gain access to finance quickly. You do not need any paperwork or credit check, and they brand themselves as a “common sense approach to business funding”. The approach is incredibly streamlined. Register with an email or phone number, connect your accounting software/bank account for business insights and you can then withdraw funds if approved. It is best suited for people who are already business owners, as opposed to people who are just starting off.
- Kabbage – Kabbage allows loans of up to $250,000. It allows 6 or 12-month terms and it is possible to qualify in less than ten minutes. By linking revenue data, you can get a decision in a brief period.
- National Funding – National Funding has a high approval rate and there is no need for a down payment when applying for a small business loan. Loans can range up to $500,000 and equipment leasing up to $150,000. National Funding has been in operation since 1999 and have a solid record of accomplishment. National Funding provides businesses with a diverse array of financial solutions.
These are excellent platforms if you need access to funding quickly and with minimal hassle. And they are perfect for those with a short or weak credit history. However, the terms will be less generous when compared to a VA SBA loan, as VA SBA loans are government mandated and specifically designed to make it easier for veterans to gain access to finance.
Maintaining a Small Business
Of course, thinking of a brilliant business idea and obtaining a loan are just the first steps. They will increase your chances of success, but by no means is success a guarantee. There are several ongoing tasks that you will need to perform to keep your business going.
- Constantly lower costs and increase profits without compromising on the quality.
- Do not micromanage employees and learn to delegate responsibility.
- Reinvent your business or adjust every couple of years to keep things fresh
- Keep track of all the numbers
- Keep up to speed with the legal changes in your industry
- Listen to feedback and do not be afraid to change the business model
- Be prepared to work nonstop for the first couple of years. And take your personal health and wellbeing into account.
The numbers are the most critical part of any small business. You will have to balance wages, utilities, rent, debt management, product purchases, licenses, consultancy charges, internet fees and more with estimated profits. Therefore, it is crucial to have cash reserves as there are so many black swans that can eat into your money supply.
There are also several resources that you can use as a Veteran to maximize your chances of success. For more information it is best to visit the Small Business Administration resource webpage for Veterans. It has a list of resources including mentoring and training, financing a business, guides on how to write a business plan and more. Common platforms for the aid of US Veterans include:
- The Office of Veterans Business Development
- Boots to Business
- Boots to Business Reboot
- Veterans Women Igniting the Spirit of Leadership (VWISE)
- The National Center for Veterans Institute for Procurement
- Veterans Business Outreach Center
- The Bunker
While creating, financing, and supporting a small business is no easy task, there are plenty of resources out there to aid Veterans in their quest for financial freedom. There will still be many hurdles, but at least obtaining a loan is now painless for Veterans who wish to create their own business. It has never been easier than it is today to start a small business with the aid of a loan from a reputable lending institution.