After two tours in Iraq, Lt. Col. Chuck Brewer figured it was time for a change, so a year and a half ago he opened a sandwich shop.
Brewer, a Marine reservist since 1997, needed just one thing to make it happen: half a million dollars.
Surprisingly, banks were salivating to lend him the cash. "They were really quite eager to close it and get it on the books," he said. He has the Small Business Administration to thank for that. With its government-backed Patriot Express Loans, SBA gives banks courage to lend to veteran-owned small businesses, knowing they'll be compensated should things go sour.
Brewer took out $300,000 in Patriot Express money through Chase, borrowed the rest from family and opened a Potbelly Sandwich Shop location in downtown Indianapolis. That's one way to go. For veterans looking to finance their dreams, a range of other loan options are available.
Rewarded for skills
To start off, experts say, veteran status alone is enough to give a small-business borrower a leg up. "When a lender or a funder sees the skills sets you have gained in the military — for example, you have managed a communications infrastructure and now you want to open a communications business — that is something they will like," said Rohit Arora, CEO and co-founder of Biz2Credit, a marketplace that facilitates loans for small businesses.
Beyond the Patriot Express program, a traditional bank loan is another way to go, and it may have advantages.
By going out into the commercial marketplace, a veteran may find a better deal. "The programs that are bigger and have more liquidity, they may also have more lenders and more institutions competing for your business," Arora said. "If you can get better terms from something outside the veteran programs, you should take that."
For veterans looking to launch themselves into entrepreneurship, the demands for funding can come from various directions. Real estate, equipment, supplies: All require capital. There may be a franchise fee to pay, or inventory to purchase. Banks will make loans to cover those costs in a number of ways.
Short-term loans: Typically set for a year or less, these loans won't require monthly payments, but you will have to pay off the full balance due at the end of the term. They'll typically be smaller loans of $100,000 or less, and they're helpful for a business looking to build up seasonal inventory, for example.
Long-term loans: Typically on the larger side, these loans cover major expenses, anything from real estate to vehicles to business acquisitions. They'll be repaid monthly over a set number of years, which may be determined according to a variety of factors.
Lines of credit: This is your "there if you need it" money. Rather than borrow a lump sum, the business owner gets a set amount to borrow against and can tap that line as needs arise. It's handy for times when income falls short, or as a means to meet a cost that demands more cash than one has on hand. A variant, known as a working capital line of credit, funds daily operations over a short term, usually about 90 days.
Equipment financing: For a smaller company, this kind of lending may prove a helpful way to buy expensive equipment, since the equipment itself serves as collateral, making it easier to access credit. Startups may find this an especially promising means to get out of the gate without having to deliver a lot of capital up front.
Microloans: One other option that gets less attention but can be helpful is the microloan. It is a very small, usually short-term vehicle often available from nonprofit, community-based organizations whose criteria may be a little easier to meet. In addition to private groups, the SBA also makes these loans to small businesses: The maximum loan is $50,000, and the average is about $13,000.
"These typically go to entrepreneurs who are looking for an alternate way of financing or who don't qualify for regular loans either because they have a low credit history or because they are startups," said Alejandra Boggiano, communications manager for Accion East & Online.
Accion East & Online offers a range of microloan products, including a program especially for veterans launched this summer. For veterans in New York City, the organization will lend up to $50,000 for established, profitable businesses and $30,000 for businesses with at least six months in operation, but not yet profitable. Veterans can also borrow up to $30,000 for the purchase of an existing business or a change in business location.
Unlike with a commercial bank, "we are a nonprofit, so it is a different experience," Boggiano said. "You have a loan consultant who works with you on your application. If you are disabled and cannot come to see us, we will come to see you."
Closing the gap
For Brewer, all has worked out well. He did have to raise a lot of money from family and friends, but with the backing of the SBA, the bank stepped in to close the gap, rescuing him from 10 years of toil in the corporate trenches and freeing him for entrepreneurship.
"I knew I was either going to keep doing corporate work forever or else go out and chase my dream," he said. "All of this has to do with being in control of your own destiny."