VA Loans vs SBA Loans: Which is Right for Your Business?

Table of Contents

• Quick Comparison

• Understanding VA Loans

• Understanding SBA Loans

• Comparing VA and SBA Loans

  • Who Can Apply

  • Costs and Terms

  • How to Apply

• Making the Right Choice

  • Best Uses for VA Loans

  • Best Uses for SBA Loans

  • Using Both Loan Types

• Next Steps

• FAQs

Veteran entrepreneurs often face a critical choice when funding their businesses: VA loans or SBA loans. Here's a quick breakdown to help you decide:

• VA Loans: Primarily for buying homes, not directly for business funding. However, they can indirectly support home-based businesses by financing properties with dedicated workspaces. Key benefits include no down payment, low interest rates, and no private mortgage insurance.

• SBA Loans: Specifically designed for business funding, covering needs like working capital, equipment, or commercial real estate. Popular options include the 7(a) Loan Program, CDC/504 Loan Program, and Express Loans, offering flexibility and government-backed guarantees.

Quick Comparison

Key Takeaway: If you need direct funding for your business, SBA loans are the better fit. VA loans are more suitable for purchasing homes, which may indirectly support home-based businesses. For a combined strategy, you can use both loan types to balance personal and business needs.

Veteran Business Loans: SBA Veteran Advantage Program ...

Understanding VA Loans

VA loans are backed by the Department of Veterans Affairs (VA) and issued by private lenders, primarily to help finance home purchases for eligible veterans and service members ^[6] . While these loans aren't meant for business funding, they can indirectly assist veteran entrepreneurs by covering property financing.

Key Features

VA loans come with several advantages:

• No Down Payment: Nearly 90% of VA-backed home loans require no down payment ^[7][8] .

• Low Interest Rates: VA mortgage rates have consistently been among the lowest over the past two years ^[6] .

• No Private Mortgage Insurance (PMI): Borrowers save on monthly costs since PMI is not required ^[6] .

• Lower Origination Costs: As of 2024, VA loans have the lowest median origination costs compared to other loan types ^[6] .

Restrictions on Business Use

VA loans are strictly for financing primary residences and cannot directly fund business operations. Here's a breakdown of what they can and cannot cover:

Eligibility Criteria

To qualify for a VA loan, applicants must meet these service requirements:

• Wartime: At least 90 consecutive days of active duty ^[9] .

• Peacetime: At least 181 days of active duty ^[9] .

• Reserve/National Guard: At least six years of service ^[9] .

Applicants also need a Certificate of Eligibility (COE), which can be obtained through the VA's eBenefits portal or directly from their lender ^[5] .

Although VA loans cannot directly fund business ventures, veterans can use them for properties that might support business activities, such as a multi-unit home with space for a home-based business. Since its inception in 1944, the VA loan program has guaranteed over 28.5 million loans ^[6] , showcasing its long-standing importance.

Next, we'll explore SBA loans, which provide direct funding options for businesses.

Understanding SBA Loans

SBA loans are designed to help small businesses secure funding by providing partial government guarantees, which reduce the risk for lenders.

SBA 7(a) Loan Program

The SBA 7(a) loan program offers financing of up to $5 million to support various needs, including working capital, equipment, expansion, real estate, and refinancing ^[13] .

• Interest Rates: Range from 10.50% to 15.50%.

• Repayment Terms: Up to 10 years for working capital and up to 25 years for real estate ^[14] .

For example, a manufacturer might qualify for a $2 million SBA 7(a) loan with a 75% government guarantee to fund equipment purchases and business expansion ^[16] .

SBA CDC/504 Loan Program

The CDC/504 loan program is aimed at financing major fixed assets with long-term, fixed-rate loans ^[15] .

These loans are processed through Certified Development Companies (CDCs) and must meet specific economic development goals ^[15] .

Additional SBA Programs

In addition to the 7(a) and CDC/504 programs, the SBA also provides other loan options tailored to different business needs.

SBA Express Loans
Express Loans offer up to $500,000 with faster processing times - typically within 10 to 45 days - and a 50% SBA guarantee ^[12][16] .

Microloans
Microloans provide up to $50,000, with interest rates between 8% and 13%, and repayment terms of up to seven years ^[12] .

Export Working Capital Program
For businesses involved in international trade, this program offers loans of up to $5 million with a 90% SBA guarantee ^[16] .

To qualify for any SBA loan program, businesses must operate legally in the U.S., have a solid credit history, demonstrate their ability to repay the loan, and be for-profit entities ^[10] . The SBA's Lender Match tool can connect eligible businesses with approved lenders ^[11] . Additionally, veterans can seek guidance through local Small Business Development Centers and the Office of Veterans Business Development ^[3] .

Comparing VA and SBA Loans

Who Can Apply

To qualify for the SBA's Veterans Advantage program, a business must be at least 51% owned and managed by a veteran or an eligible military member.

Here’s who qualifies:

• Veterans honorably discharged from service

• Veterans with service-related disabilities

• Active-duty military members in the Transition Assistance Program

• National Guard members and active reservists

• Military spouses or widows of service members ^[1]

Additionally, businesses must meet these requirements:

• Operate within the U.S.

• Maintain a credit score of 650 or higher

• Have no outstanding tax liens or recent bankruptcies ^[1]

Once eligibility is clear, it’s important to look at the financial terms and costs to see how these loans compare.

Costs and Terms

After confirming eligibility, examine the costs and terms of the loans. Here’s a side-by-side look at key details:

With the prime rate currently at 7.5% (as of February 2025) ^[19] , Veterans Advantage loans for terms under seven years generally follow these rates:

• Loans under $25,000: Prime + 4.25%

• Loans between $25,001 and $50,000: Prime + 3.25%

• Loans over $50,001: Prime + 2.25% ^[18]

How to Apply

To apply, you’ll need to submit the following:

• A detailed business plan

• Financial statements

• Tax records

• Proof of business ownership

• Military service documentation (e.g., DD214 for veterans or DD2/DD2648 for active-duty members) ^[3]

The SBA Express program offers quicker responses - within 36 hours - compared to the standard application process, which can take several weeks ^[17] . If you don’t have your DD214, you can use NA Form 13038 as an alternative ^[3] .

Making the Right Choice

Best Uses for VA Loans

VA loans are primarily designed for buying a home, but they can indirectly support your business if part of the property is used exclusively as a workspace. These loans work well for home-based consultancies or online businesses. For example, if you dedicate a specific area of your home for business activities, a VA loan might help you finance the property, indirectly assisting your entrepreneurial goals.

Best Uses for SBA Loans

SBA loans are tailored to cover a wide range of business needs and are more flexible for direct business funding. Here’s how different SBA programs can help:

• 7(a) Loan Program: Ideal for working capital, debt consolidation, or purchasing commercial real estate.

• CDC/504 Loan Program: Designed for buying commercial properties.

• SBA Express Loans and Microloans: Offer quicker options, with microloans typically providing up to $50,000 for startup costs or smaller expenses.

Using Both Loan Types

Combining VA and SBA loans can create an effective funding strategy by taking advantage of each program’s strengths. For instance, you could use a VA loan to purchase a home with a designated workspace and an SBA loan to cover business expenses like equipment or inventory. This approach could help lower personal housing costs, freeing up more money for business investments.

To make the most of this strategy, you might want to consult a Veterans Business Outreach Center (VBOC). They can help create a funding plan that balances your needs and keeps debt manageable ^[3][20] .

Although VA loans don’t directly fund business operations, they can work alongside SBA loans by reducing housing expenses, leaving more funds available for business priorities. Currently, nearly 5% of U.S. employer small businesses are veteran-owned, highlighting how impactful these funding strategies can be for veterans ^[4] .

Next Steps

Now that we've reviewed loan options, here’s how to move forward in securing funding for your business:

Understand Your Business Needs
Identify exactly how much funding you require and what it will be used for. VA loans are ideal for home-based businesses with a dedicated workspace, while SBA loans are better suited for covering business expenses like inventory, equipment, or commercial property.

Get Your Documents in Order

Make sure you have the following:

• DD Form 214 (Certificate of Release/Discharge)

• A detailed business plan with financial projections

• Personal and business financial statements

• Tax returns from the past three years

• Proof that your business is at least 51% veteran-owned

Having these ready will streamline the application process and make things easier when working with advisors.

Tap Into Support Resources
Veterans Business Outreach Centers offer free guidance to help you select the right loan and navigate the application process.

Combine Loan Options
Using both VA and SBA loans together can offer more flexibility, allowing you to take advantage of the benefits each provides.

Look Into Special Programs
The SBA Veterans Advantage program offers reduced fees and faster processing times. Also, make sure you've explored alternative funding options as required by SBA guidelines ^[21] .

FAQs

Can veterans use both VA loans and SBA loans at the same time for their business and housing needs?

Yes, veterans can use both VA loans and SBA loans, but it's important to understand their distinct purposes. VA loans are specifically designed to help veterans, active-duty service members, and eligible family members purchase or refinance a home. On the other hand, SBA loans are tailored to support small businesses, including those owned by veterans, by providing funding for business-related expenses like equipment, inventory, or working capital.

While these loans serve different needs - housing versus business - they are not mutually exclusive. If you meet the eligibility requirements for both, you can apply for and use them simultaneously, provided you use each loan for its intended purpose. Be sure to carefully review the terms and conditions of both programs to ensure they align with your goals.

What are the main eligibility differences between VA loans and SBA loans for veteran-owned businesses?

To qualify for an SBA Veterans Advantage loan, the business must be at least 51% owned and controlled by eligible veterans, active-duty service members, or their spouses/widows. Additionally, the veteran owner must have been honorably discharged or classified as service-disabled.

VA loans, on the other hand, are typically focused on personal home financing rather than business funding. For business purposes, SBA loans are the more relevant option for veteran entrepreneurs looking to access funding tailored to their needs.

How can veterans choose the right loan for their business and financial goals?

Veterans can choose the best loan for their business by evaluating their specific needs and financial circumstances. Start by considering key factors like eligibility requirements, loan terms, and interest rates. For example, VA loans often cater to veteran-owned businesses with specific benefits, while SBA loans may offer broader options for small businesses.

Think about your business's ownership structure, location, and your ability to repay the loan. Assess your credit history, financial projections, and business plan to determine which loan aligns with your goals. Carefully reviewing these elements will help you identify the best funding option for your unique situation.