VA loans, or in this case, Patriot Express Loans and Military Reservist Economic Injury Disaster Loans, are actually loan guarantees made available from the Small Business Administration (SBA) to veterans or soldiers or their wives or widows who are going off to serve in the military or who have returned from their military service. They are not actually loans from the VA or Veterans Administration. The Small Business Administration has an Office of Veterans Affairs that oversees business loans to veterans. These are loans with an interest rate attached. They are not grants.
What Types of VA Business Loans are Available?
There are two types of VA loans available. First, there is the Patriot Express Pilot Loan Initiative. This program was set to expire in 2010 but was so successful that it was extended through 2013. The SBA also provides counseling and training to go along with this loan and the program has been very successful.
The second type of business loan is the Military Reservist Economic Injury Disaster Loan (MREIDL). This loan is to provide working capital to businesses that could have met their obligations and continued to meet their obligations had their principal owner not been called up for military service.
Who is Eligible for These VA Loans?
All active military personnel, veterans, and service-disabled veterans are eligible for these loans. Veterans who received a dishonorable discharge are not eligible for the loan programs. If you are active duty personnel within 12 months of separation or a retiree within 24 months of retirement, you can qualify for the Patriot Express Loan Program. Reservists and National Guard are also eligible as well as wives or widows of service members.
What Types of Businesses are Eligible for These Loans?
The business must be owned at least 51% by a qualified veteran according to the definition above. Most businesses are eligible as long as the business is not a pyramid scheme, a gambling business, or a lending business. Also, the business must be a for-profit business. Non-profits are not eligible.
What can I use the Loan for?
The proceeds of a Patriot Loan can be used for most business purposes. Examples are infusing working capital into your business, start-up costs for a new business, purchasing equipment, purchasing real estate for your business to occupy, inventory to sell, business management, expansion of your business, setting up to sell goods and services to the government (contracting), setting up your business for the possibility of your deployment, and recovery from declared disasters such as hurricanes, tornadoes, and earthquakes.
How Much Money Can I Borrow?
The amount of money you can borrow depends, to some extent, on the lending institution you go through. The Patriot Loan Program will guarantee 85% of the amount borrowed up to $150,000 or less and 75% of the amount borrowed between $175,000 and $500,000.
How Does the Program Work
The Small Business Administration does not actually loan the money to veterans. Lending institutions like banks or credit unions make the loans. The federal government guarantees your loan. If your loan is less than $25,000, you do not have to have collateral. If it is between $25,000 and $350,000, the lending institution can invoke its existing collateral policy.
Your interest rates will usually range from 2.25% to 4.75% over the current prime interest rate. You can always try to negotiate a lower interest rate.
If you need help finding a lender, the Small Business Administration has local offices in every state that can help you. Here is a list of their local offices.
Military Reservist Economic Injury Disaster Loan Program (MREIDL)
What is the Purpose of the MREIDL Loan?
When an "essential employee" is called up for active duty in the military, a business becomes eligible for a MREIDL loan. The purpose of this loan is to provide for the business's necessary expenses that cannot be provided for because the essential employee is not present in the business. The purpose of this loan is not to replace lost profits. The purpose is just to pay obligations and replace working capital so the business can survive.
Before a MREIDL loan is granted by the Small Business Administration, federal law requires that they investigate whether or not the business has the resources to recover on their own after the essential employee returns. If not, then the business is eligible for the loan. The SBA has determined that about 90% of the businesses applying for this loan cannot recover on their own.
The interest rate on the MREIDL loan is 4 percent. The maximum term of the loan is 30 years, though that depends on individual circumstances as does the amount of the loan. The maximum amount of the MREIDL loan is usually $2 million, which can be waived, but that is heavily dependent on the amount of the economic injury to the business due to the call up of the "essential employee."
These loans can be just what military personnel and their spouses need. Start by contacting the Small Business Administration and they will set you on the right path for each type of loan.