What Lenders Want: Insider Tips for Veterans Looking to Start a Small Business

For many veterans, entrepreneurship offers a new mission: turning military-honed discipline, leadership, and problem-solving skills into business success. But even the strongest business idea can stall without financing. Lenders look for preparation, financial responsibility, and a well-thought-out business plan. Here’s a closer look at what veterans need to start a business.

Types of Business Loans Available to Veterans

Veterans can apply for many types of financing, but the Small Business Administration’s (SBA) loan programs are typically a good place to start. The SBA  prioritizes loans for veteran-owned businesses. Delegated lenders are also encouraged to take special care with these applications.

CDC Small Business Finance offers the following SBA loan options for eligible veteran-owned businesses:

• SBA 504 loan: The SBA 504 loan provides up to a $5.5 million debenture and is typically used to purchase large assets, such as real estate. This is SBA’s debenture amount, not necessarily the entire project cost. In general, the SBA debenture covers 40 percent of the project costs. Projects funded by the 504 loan must also meet job creation or public policy goals.
• SBA 7(a) Community Advantage loan: This type of 7(a) loan is designed to increase credit access for business owners with limited resources. The program specifically includes veteran-owned businesses. CDC Small Business Finance provides Community Advantage loans up to $350,000.
• SBA Microloan: As the name implies, this is a smaller loan of $10,000 to $50,000 with a seven-year term, best for new or early-stage businesses that can’t obtain funds from a bank.

Other SBA loan programs may also be available to veterans through participating lenders. For example, standard SBA 7(a) loans provide up to $5 million for eligible expenses, including working capital, equipment, business acquisitions, and commercial real estate. Unlike the SBA 7(a) Community Advantage loans offered by CDC Small Business Finance, standard SBA 7(a) loans are available through other participating lenders.

Outside of the SBA loan program, some veteran business owners may qualify for conventional business loans and grants. Some financial institutions, such as community banks, even offer special loans or programs geared toward veterans. This option may be useful if a business doesn’t qualify for an SBA loan, wants to bridge funding gaps, or needs quick access to financing.

What Lenders Look For

Lenders evaluate several factors when reviewing a small business loan application, including the business owner’s experience, credit history, financial projections, and ability to repay the loan. These considerations help lenders assess financial risk and determine whether the financing fits the business.

As a mission-driven nonprofit lender, CDC Small Business Finance looks beyond the numbers to understand each entrepreneur’s experience, business goals, and financing needs. Its approach combines responsible lending practices with a commitment to expanding access to capital for small business owners, including veterans who may struggle to secure conventional financing.

Expanding access to capital goes hand in hand with responsible lending. To understand how lenders evaluate a business’s financial readiness, it helps to know the 5 Cs of credit:

1. Character: Character refers to a business’s or person’s track record of paying back money as agreed. A higher credit score and a history of timely payments give lenders more confidence, so it can help owners qualify.
2. Capacity: Most lenders gauge capacity by checking the business’s historic cash flow or reviewing cash flow projections. This information reveals whether a business can cover loan payments.
3. Capital: Capital refers to the business’s down payment or “capital injection.” A down payment signals that the business has skin in the game and is committed to the project.
4. Collateral: Collateral is an asset, such as real estate or receivables, that secures a loan. If the business fails to repay its debt, then the lender can take the assets to recoup its losses. Loans that require collateral are less risky for the lender.
5. Conditions: Conditions are the applicable industry’s trends at the time a loan is being requested, as well as general economic conditions at the time of application. The loan’s purpose and a detailed market analysis will help lenders decide how viable a business is in the current business environment, and ultimately how likely it is to succeed.

Six Insider Tips to Strengthen a Business Loan Application

Doing prep work before the loan process can boost a veteran-owned business’s chances of success. Consider these tips:

1. Create a Business Plan

Most lenders require a business plan when applying for business financing, particularly for startups. A solid business plan should demonstrate not only how the loan funds will be used but also show a clear path to repayment of the loan. Cash flow projections and other financials are also typically included. Free business plan templates for veterans are online and offer fillable forms and industry-specific guidance.

2. Demonstrate Relevant Qualifications

Lenders typically look for some relevant industry experience. This may look like:

• Work or volunteer experience
• Training with industry groups
• Educational background
• Certifications geared toward the industry or role

Additionally, lenders also look for financial stability and strong credit. Does the veteran have personal savings to support themselves as the business grows? Do they have strong credit? Are they taking steps to overcome a financial setback?

A business owner with some of these qualifications offers lenders “a holistic profile we can really get comfortable with, even if the business owner lacks capacity or a bunch of collateral,” says Tony Barengo, senior vice president of the SBA 504 loan program at CDC Small Business Finance. “That’s how we mitigate the other weaknesses that a lot of startup businesses or mission-based businesses have.”

While relevant experience can offset some weaknesses, a borrower must show adequate cash flow to reasonably assure repayment.

3. Get Prequalified Before Applying

A loan prequalification lets veterans looking for business financing see whether they’re likely to qualify and preview potential loan terms. If the terms aren’t what the borrower had in mind or they didn’t qualify, it may be best to wait to submit a formal application or explore other financing options. In some cases, the borrower may need to take steps to improve their credit, save up a down payment, work on boosting cash flow, or gain more business experience.

4. Form Relationships with Lenders & Industry Groups

Veterans have several community resources available when they’re looking to start or grow a business. Lenders may also have internal teams to help borrowers review their loan applications and provide feedback. CDC Small Business Finance, for example, offers free Business Advising to applicants and borrowers to help them through the process.

Here’s a list of places where veterans can find additional assistance:

• Veteran Business Outreach Centers
• Small Business Development Centers 
• SCORE.org
• The D’Aniello Institute for Veterans and Military Families
• DAV Patriot Boot Camp
• STRIVE
• The Rosie Project
• SBA resources for military spouses

5. Use Veteran Certifications as an Advantage

Veteran-owned businesses often have a higher survival rate than their civilian-run counterparts. Our External Sales Manager of Small Business Loans, Penny Garton, believes it’s the borrowers’ discipline that drives this success.

“It isn’t a 9-to-5 job. It’s a lifestyle,” Garton says of both the military and entrepreneurship. “When we see an applicant who has spent time in the military, it gives us a certain level of confidence that these folks have the consistency, discipline, hard work, and ethic to be successful.”

To that end, it’s important to play up the business owner’s military service and experience. “The business owner should explain their role, job duties, or any responsibilities that provided relevant skills to the business,” Garton says.

Here are some ways to do that:

• Document veteran-owned status: If a business owner applies for a veteran-specific loan or grant, they’ll typically need to document their service and discharge status. Applicants can gather their military service records through the U.S. Department of Veterans Affairs.
• Highlight experience: Some lenders give special consideration to veteran businesses during the application process or when negotiating terms due to their experience and learned skills. Relevant experience and applicable certifications received during a borrower’s time in the military should be referenced on applications, in business plans, and in other important documents. In short, experience matters.
• Apply for certification: The federal government has a 5 percent contracting-dollar goal for service-disabled veteran-owned small businesses (SDVOSBs). Certified veteran-owned small businesses (VOSBs) can also pursue certain Department of Veterans Affairs (VA) opportunities. Entrepreneurs can compete for these contract dollars after completing the certification process through SBA VetCert.

6. Clean Up Credit Reports & Financial Statements

During the application process, lenders may check the veteran’s personal and business credit along with financial statements. Before applying, business owners should organize key financial documents and identify any issues in their personal or business credit.

These steps can help the veteran-owned business build a clean financial profile:

• Pay down or resolve outstanding judgments, liens, or delinquencies
• Make all payments on time for personal and business accounts
• Check personal and business credit reports regularly and dispute inaccuracies as needed
• Check financial statements for accuracy and clarity
• Document irregularities, such as one-time expenses or prior losses, and prepare relevant explanations

Common Mistakes Veteran Business Owners Should Avoid

Entrepreneurship comes with many risks, especially when a business is just starting out. Avoid these common missteps when launching a new business:

• Quitting a day job: Until the business becomes profitable, startup owners should either have some type of income, such as from another job or a spouse, or 12 months living expenses saved.
• Applying too early: Submitting incomplete business plans or underprepared applications leads to rejections or unfavorable terms.
• Underestimating cash flow: Projections that are overly optimistic or don’t plan for variability could result in a loan denial or default.
• Not exploring all funding options: Overlooking nontraditional or veteran-focused lenders, local programs, or certification advantages means potential capital gets left on the table.

The Bottom Line

At CDC Small Business Finance, our mission is to help entrepreneurs succeed by bridging the financing gap and offering support at every stage of the loan application process.

CDC Small Business Finance has financed businesses across diverse sectors and has helped over 3,000 small businesses nationwide, including many veteran-owned companies. Businesses that work with CDC Small Business Finance receive guidance at every step, from prequalification to business advising to funding.