Veterans and active-duty service members have earned significant benefits, including options for home loans However, many veterans are interested in commercial real estate loans to start or expand a small business. I want to provide a complete guide to commercial real estate loans tailored for veterans and military members
Overview of Veteran Business Ownership
Veterans have a strong record of entrepreneurship and small business ownership. According to the SBA Office of Advocacy, veterans are 45% more likely than non-veterans to be self-employed. There are over 2.5 million veteran-owned businesses in the U.S., generating over $1 trillion in receipts annually.
Many veterans utilize skills, training, and leadership from their military service in business ventures after separating from active duty. Access to capital is essential for veteran entrepreneurs to start and grow their businesses. Commercial real estate loans allow veterans to purchase or expand facilities to operate businesses effectively.
SBA Loan Programs for Veterans
The US Small Business Administration offers two loan programs commonly used by veterans for commercial real estate
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SBA 7(a) Loan – Offers loan amounts up to $5 million for purchasing real estate, equipment, working capital, and business acquisition. 25-year loan terms available for real estate.
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SBA 504 Loan – Provides up to $5.5 million for major fixed assets like real estate and long-term equipment. Features low down payments and fixed interest rates.
The SBA 7(a) and 504 loans provide favorable terms and the ability to get financing that may not be available conventionally. Loan amounts up to 90% or even 100% of project costs are possible under certain conditions.
The SBA has an Office of Veterans Business Development that works to maximize opportunities for veteran-owned businesses. However, SBA loans are available to all qualifying small businesses, not just those owned by veterans.
Things to Know About SBA Loans
Here are some key points about SBA loans:
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For real estate, 51% of space must be occupied by the business within a reasonable time. For new construction, 60% occupancy is required initially.
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SBA 7(a) loans can be used for working capital, equipment, debt refinancing, etc. The 504 loan is for real estate and major equipment only.
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Personal assets are not at risk. The SBA guarantees a portion of the loan, limiting liability for business owners.
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Credit scores, collateral, and down payments may be flexible for strong applications. Profitable businesses and those with solid experience have the best chances for approval.
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Interest rates on SBA loans are competitive. Rates adjust quarterly but owners can lock in their rate before closing.
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Prepayment penalties do not apply to SBA loans, allowing owners to pay them off early with no extra fees.
Tips for Veterans Seeking Commercial Loans
Based on my experience assisting veteran entrepreneurs with business financing, I recommend several best practices:
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Check eligibility – Meet program requirements for ownership percentage, size standards, use of funds, etc. Some industries like real estate investment are restricted.
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Get prequalified – Work with an SBA lender to evaluate your eligibility and discuss the viability of your business or project before formally applying.
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Build your team – Enlist help from accountants, attorneys, real estate brokers, and other professionals to put together the strongest loan application possible.
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Manage debt – Lenders will review your personal credit and financials. Try to limit household debt and keep credit scores above 680.
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Document experience – Highlight skills from your military experience that translate to business management and operating the company you are proposing.
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Consider a Business Plan – A solid business plan can help demonstrate feasibility even for existing companies looking to expand.
Finding an SBA Lender
The SBA has participating banks and non-bank lenders that offer 7(a) and 504 loans. Research lenders with expertise in your industry and experience lending to veterans. Here are some places to start your search:
- Local banks, credit unions, and community lenders
- National and regional SBA lenders
- Online lender marketplaces like LendingTree and Lendio
- Ask for referrals from business brokers, attorneys, and accountants
The SBA does not lend money directly but they have useful tools like the LenderMatch platform to connect with approved program lenders.
I highly recommend considering both local and national lender options to compare rates, terms, and overall responsiveness. Some buyers are surprised that an online lender provides personalized guidance and delivers the fastest financing.
Alternatives Beyond SBA Loans
SBA loans provide terrific options for veterans’ commercial real estate needs and business capital. However, you should also explore conventional financing in case you can qualify for better terms outside of government programs. For example, a strong candidate with ample equity may get better rates/fees from a portfolio lender.
Veterans who do not qualify for an SBA loan could look at alternative lenders, crowdfunding, home equity lines of credit, 401(k) business financing, and other sources. These options tend to come with higher costs and more stringent requirements. But they may be necessary for newer businesses or special situations when SBA loans are not feasible.
Your chances for approval increase when you have solid experience managing this type of business and adequate personal capital invested. Some veterans discover they need 1-3 years of further preparation before pursuing commercial real estate loans for the growth goals they have in mind.
How We Can Assist with Your Application
Our team has worked with many veterans across the country to secure SBA financing and other business loans. We simplify the process for you and negotiate favorable terms with our network of lenders. Veterans receive the focused support they deserve as they take the next steps in entrepreneurship.
We offer free consultations to evaluate your needs and financial standing. You can count on clear guidance from our advisors with military backgrounds themselves. Our promise is to save you time researching options while matching you with lenders that deliver tailored solutions.
Please reach out for a free consultation to start a conversation about achieving your commercial real estate and small business goals. Veteran-owned businesses are tremendously important to our economy. We want to see your entrepreneurial dreams become reality.
VA Loan for Commercial Property
Again, these loans are not necessarily VA SBA Loans, but they are very definitley available to veterans and there are numerous banks and lenders who have a proven track record of getting them done.
Also, since many veterans and active-duty service members get 100% home loans, the expectation is generally that there should be a 100% financing program for commercial real estate that veterans can take advantage of, and there is for small businesses, IF you already own a successful business.
To clarify, there is a small minority of SBA 7a lenders who will offer 100% financing to an existing business in the following circumstances:
- An existing, profitable business looking to purchase a property where the business (employees, equipment, inventory, etc.) will occupy at least 51% of the square footage of the property. Aside from the owner(s) having decent credit, no character issues, affordable personal overhead, etc. the business itself must be doing well under management of the veteran. In other words, you cant typically have recently purchased a business that is renting space and then almost immediately go out and buy a building for it right away. Lenders like to see that you can capably own and manage the business for a period of time before allowing you to take on new debt.Of course, there are exceptions to a lot of rules, and there have been situations where borrowers with a lot of very relevant, very recent experience running a similar operation have been approved for a commercial real estate loan soon after buying a business.
- An existing, profitable business looking to expand operations by acquiring another similar type business or a competitor.
- An existing, profitable business looking to grow by opening a brand new location.
What is not mentioned above is commercial investment property financing, and this is because the SBA is only for small businesses that will legitimately “owner-occupy” the property. You cannot use the program for multi-family, apartments, 1-4 family, single family, strip centers, office buildings or properties where your business does not legitimately occupy at least 51% of the space.
The whole SBA “owner-occupied” terminology is admittedly confusing, so the key is to know that it is all about closely held businesses where again, the business needs the majority (51% or more) of the square footage to effectively operate and the rest can be leased out to tenants.
The SBA rule is slightly different for ground up construction projects, which can also be financed at or above 100% loan to value/loan to cost, as your business needs to initially occupy 60% of the square footage.
For more info about 100% financing: click here.
The SBA 7a loan is a program that allows a veteran to purchase a business OR a commercial property to operate the business. The 7a is also available to veterans who already own a business and need capital for any other business purpose and there are a few lenders who offer 100% business purchase loans if (and only if) you are expanding your already successful business. You can learn more about that on the following page: business purchase loan.
Additionally, the SBA 7a can be used to finance online businesses. You can read about how to do that on our blog here: ecommerce business funding.
The 504 is a 2 loan structure and its value lies in the fact that the 2nd mortgage is fixed for 25 years, although well qualfied borrowers might also be able to get a 25 year fixed rate first mortgage as well. The 504 is for commercial real estate, although it can be used for “long life” equipment.
VA Business Loan for Rental Property
VA business loans for rental property can only be used for certain types of SBA eligible “rental property.” The following can be financed: self storage, RV and boat storage, RV parks, marinas, campgrounds and hotels and motels,as long as the veteran business owner will be either running the business, have an employee running the business, employing an eligible third party management company OR in the case of self-storage, mini-storage or RV/Boat Storage it is possible to get an SBA loan for a storage facility that is fully automated (with proper security, a self-service kiosk, etc, which can be very desireable from an ownership standpoint.
The SBA has specific requirements for what they consider to be owner-occupied business property and none of the following are eligible: multi-family, apartments, 1-4 family, single family, strip centers, office buildings or properties where your business does not legitimately occupy at least 51% of the space.
In the case of an SBA loan for an RV park, marina or campground the only way it is eligible is if more than 50% of revenues (or projected revenues in the case of a new or expanding business) are from guests/customers who are short term stays (less than 30 day), although some lenders are okay with parks that are set up to accomodate seasonal guests.
If purchasing commercial real estate that will be used by the business then a 25 year term is available. If purchasing a business then a 10 year term is possible.
The 504 is good for veterans who already own a business and need to do one of the following:
- Purchase real estate where your business will occupy the majority of the space
- Expand, remodel, renovate or retrofit an existing building or facility
- Install Green or Renewable Energy Equipment as part of a renovation
- Purchase expensive business equipment with a useful life of at least 10 years
- Refinance an existing commercial loan including a refinance of an existing SBA 7a loan as those can now be refinanced with a 504 as of 2021
The 7a is good for all of the above as well as business acquisitions, buyouts, startups and any other business purpose.
Can a Veteran use a VA loan to purchase commercial use property?
FAQ
Can a VA loan be used for commercial?
How much can a veteran borrow on a business loan?
Does USAA do commercial loans?
What credit score do you need for a VA business loan?
Can a veteran get a small business loan?
For example, the U.S. Small Business Administration (SBA) has backed loans with discounted fees for vets in the past. Likewise, some private lenders emphasize extending small-business loans to veterans. You also won’t find any VA business grants. Grants specifically for veterans do exist, but not through the VA. Again, sorry.
Do veterans get 100% home loans?
Also, since many veterans and active-duty service members get 100% home loans, the expectation is generally that there should be a 100% financing program for commercial real estate that veterans can take advantage of, and there is for small businesses, IF you already own a successful business.
Are business loans for veterans a good idea?
Business loans for veterans can make it easier for current and former service members to start and grow their businesses. In addition to offering loans specifically tailored to veterans, the U.S. Small Business Administration (SBA) provides 7 (a) loans and leadership resources to help businesses thrive.
How do I get a business loan as a veteran?
Getting a business loan as a veteran starts with shopping around to see what funding will provide you the most benefit. Here’s a rundown of steps to take: Review SBA loan options. The SBA’s website has a loan search tool where you can input information about your business to connect with lenders providing SBA loans with veterans benefits.
What is the Veterans advantage loan program?
The Veterans Advantage Loan Program is part of the SBA’s most popular program — the SBA 7 (a) Loan Program. When you apply for a Veterans Advantage Loan, you go through the standard SBA 7 (a) Loan process (or optionally through the SBA Express Loan process if the loan is for $350,000 or less).
Which SBA loan program is best for veterans?
The Veterans Advantage Loan Program is a popular choice for veterans because you can use the loan for most business purposes, such as expanding or acquiring a business, purchasing equipment, working capital, or debt refinancing. The SBA VA loan program includes the SBA Veterans Advantage 7 (a) loan as well as an SBA Express Loan for veterans.