Editor's note. This is an excerpt from an interview with an SBA small business loan provider, relating to the program known as US Patriot Express. This program is for business loans available to Veteran-owned ventures (active duty service members, veterans, and their widows and spouses), whether start-ups or existing businesses. The purpose of this interview is to get a real, in the trenches, view of how the program works from someone who does it every day. Does it really benefit our veterans?
Excerpts of Interview
US Patriot Express Loan Program
Q. Greetings, and thank you for giving me the opportunity to speak with you.
A. My pleasure.
Q. I would like to begin by focusing on the US Patriot Express Initiative Loan Program. Fancy title, but what is it exactly?
A. It's a long winded way of saying the Bush Administration came up with a vet loan program for business owners. These are loans for veteran-own business owners. The fund comes from private lenders and banks that are licensed with the SBA. As an incentive for the lenders to make the loan, they are guaranteed for default, previously are reimbursed 85% of the value of loan. I have to tell you, this makes a big difference because it really motivates the lenders. It gets them off the dime and makes them more willing to open up their coffers.
Q. So the money does not come directly from the VA or the Small Business Administration?
A. Right. The VA is not involved in loaning the money. However, they are huge supporters of the program. The SBA directly loans taxpayers monies only under its disaster program. In this program the SBA approves the lenders and guarantees the defaults. Private banks and lenders actually loan the veterans the money.
Q. But it is called a SBA guaranteed loan program. Does not that mean the approvals would be guaranteed if you're a veteran?
A. I wish that was the case. It's not the approvals that are guaranteed. If you make a small business loan and do not make your payments and it goes into default, the bank has to alert the Federal government and after taking various steps and attempting to collect, the bank will actually get paid 85% of the loan value . The SBA guarantee acts like an insurance policy to the lender; they guarantee the 85% to the lender who makes the loan.
Q. So the veteran does not get any special consideration in the approval loan process?
A. By law, the lender has to use their usual, customary, and prudent credit review practices that are used for both conventional and SBA business loans. But let me cut right through all of this. It depends a lot on the lender. We are pro "veteran small businesses" and will try everything to make the loan. Way before this program became politically popular in June of 2007; we were making lots of loans to veterans and trying everything in our power to say "yes." They just have to meet us half way, with more positive than negative on personal credit.
Q. OK, so far so good. Because of 85% guarantee, that does not mean the vet applicable only has to put up 15% contractual because the rest is secured by the guarantee?
A. Unfortunately, it does not work that way. First, most of my small business loans are unsecured and so we do not even ask about collateral. You're not describing your equity in your house, the value of your trade fixtures, or anything else. There are simply no liens on property. For larger loans collateral will be required and in today's market, it will usually be real estate.
Q. Do they check the personal or business credit of the applicant? I notice that there are a lot of online businesses that claim you can get business credit without using your personal social security number. Will that work in this case?
A. Unfortunately, the lenders in most cases only check your personal credit report through Experian, TransUnion, or Equifax. There are companies out there that promise to get you a business credit card or unsecured small business loan only using your taxpayer ID number and not your social security number. Be careful. Although there are people who have been successful, there just as many who have failed doing so. And it takes a lot of time, because you have to create credit in the business name first and then make the bank application.
Q. I'm an adult and you can tell me like it is. What is the minimum credit score required?
A. These military loans are not like applying for a credit card. They rarely base the decision solely on your credit score. They look at the overall credit report. As to that report, they look at: 1) your credit paying history back seven to ten years, 2) the current status of your accounts, 3) the number of accounts, 4) the quality of the accounts. . .there's a big difference between a Capital One credit card and platinum American Express, 5) how long you have had the accounts, 6) matters of public record such as judgments and tax liens, 7) inquires, and how 8) how high your credit card balances are.
Q. Who can qualify for these loans?
A. The good news is it applies to a lot of individuals. You can be a veteran, current active duty service personnel in the TAP program, service disabled vet, in the reserve component's or National Guard, or the minority or widow of any of the above. And if you are the spouse of a veteran, you can apply in your own name. You do not have to be a combat veteran. All you need is your honorable discharge papers which are in the form of a DD 214.
Q. Can any small business qualify? I mean, can it be everything from raising chickens to developing software for weapons control systems?
A. It's funny you should say that, because I have done both of those. There are very few categories that make you ineligible, including multi-marketing, speculative real estate, gambling activities, your own private investments or self-owned real estate, to name some of the larger exceptions.
Q. All right, we have some of the basics under our belt. How much can you apply for?
A. They go anywhere from $ 5,000 to $ 500,000. I specialize in the smaller Patriot Express ones from $ 5,000 to $ 50,000, which do not require any collateral. Above that will require security. In the good ol 'days about a year ago, the bank's considered using your trade fixtures or business personal property. Then when the economy got worse, they started requiring some form of real estate equity. Now most of them are requiring 100% real estate equity, which is getting tougher in these times because the value of people's homes is falling.
Q. Well that's easy. Since I am a vet, I want the full $ 50,000.
A. I am with you, but remember you have to qualify for that amount, which is why you get to select how much money you would like to borrow and then all of the key components of our credit matrix system is matched to your request. We always try to loan you for the highest amount, but you must qualify for it.
Q. What is this going to cost me? What are the monthly payments and interest rate?
A. Although it is a tough time for credit, it is a great time for low payments. Currently a smaller Patriot Express loan is at a four year interest low of 7.75%, which equates to $ 60 per $ 5,000 borrowed. These are ten year fully amortized, principal and interest loans. Because there is no prepayment penalty, you can pay them off early and stop the interest.
Q. So the payments can go up?
A. The smaller unsecured loans are variable and not fixed. But because the payments are spread out over such a long period of time, as interest goes up, there is not a precipitous increase in the monthly payment. Historically, they started out six years ago at $ 89 per $ 5,000 borrowed and are now down to $ 60.00.
Q. Under your Patriot Express Initiative loan program, do I have to put up the equity in my house or have liens on my business assets?
A. Not at all. They are 100% unsecured small business loans. As a matter of fact, they do not even ask you to list or describe your assets.
Q. I'm in the process of finishing my business plan. Can I submit the application without one?
A. You can. It is not required. On the other hand, it helps. So I tell people if they are a couple of hours away from finishing their business plan, by all means do so. It is beneficial to have even if you do not apply for the loan. But if it is going to take you two or three weeks, do not sweat it, and simply send in the application. We can always work on the business plan later.
Q. How long will this take, from start to finish?
A. The larger loans take longer because there's more paperwork and more review required by the lenders. But the small ones I do are extremely quick. You can usually get answers within 24 hours and is wired into your business account within approximately ten days with the completed paperwork. We have special software that allows us to expedite the process. And, the program mandates a quick issuance of an SBA loan number from the central processing center – so once everything is finished, you can usually get an SBA loan number within one or two days and then the money is wired.
Q. Do most banks do these types of loans?
A. Any bank that is already approved by the SBA is able to do these loans. But the sad fact is that most banks do not do them. I've even run into lenders who have never even heard of the program. They will simply run you through their application process without concentrating on the fact that you're a veteran. We are veteran friendly and encourage these applications.
Q. Before this interview, I did not really know what a patriot loan was. How come it has taken this long to hear about this loan?
A. The simple fact is it is I run into veterans all the time that have never even heard of the program. What a shame. It is here for our military – and we need everyone to help get the word out.
Q. If my credit is not very good, can I use a co-signer?
A. Unfortunately no. On the other hand, anyone with a 20% or more interest in the business will fill out the application and have their credit checked. But bear in mind you have to have at least a 51% or more interest from veterans to qualify.
Q. What happens if I have gone through bankruptcy? Have I shot myself in the foot?
A. We have applicants all the time that have worked hard after bankruptcy and have their credit score in the high 600's. Some banks will not touch you but we will. We require that you conclude the bankruptcy, wait approximately 6 to 8 months after that to re-establish credit, and show that you're paying your bills absolutely on time after that. This means you can not go on an "all cash" basis because you must establish credit first and it has to show you are meeting your obligations on time. We give you one chance to make a mistake but after that you need to show you learned from the mistake.
Q. Assume I pay my bills religiously on time, but I have high credit card payments. Will this hurt my chances?
A. This has become a very big problem. We have lots of people who pay their bills absolutely on time, but have high credit limits. This is now a factor seriously considered by lenders. The more you have and the higher your limits, the more negatively it is considered. The only problem is that many businesses stay afloat only with their credit cards, and had no other options because the banks are not lending.
Q. What about business financial statements and tax returns?
A. This is definitely required on the larger loans, but not on the small ones. The paperwork is meant to be short and simple so they can be processed quickly.
Q. Do you have to incorporate or form an LLC?
A. Not all. You can be a sole proprietorship. The nature of the business is not one of the factors in making the credit decision.
Q. I have a good credit score and do not want any more inquires which bring down my score. Is there anything I can do?
A. That is a definite problem. We have to pull your personal credit report it is mandatory. On the other hand, my staff can give you a general idea of your chances if we know your credit score. That way you'll not be disappointed.
Q. Do you find that the vets you deal with like the program?
A. They absolutely love it. For good reason, they have put their lives on the line and they feel entitled to a fair shake in starting or expanding their business. They are grateful there is a program out there for them.
Q. You have any suggestions as to how person can increase their chances?
A. Sure: The following really helps: 1) a business plan with financials. Financials are the most important part. But I also tell people that you're not trying to get an "A" on a term paper. Just do a good basic job and trying for a "C +". 2) Tell them exactly what you're going to be spending and on. Just saying that you needed it for cash flow does not quite make it. I had a case once where someone had a restaurant and were expanding their kitchen. They had spent weeks shopping around and saved a detailed list of the exact equipment, model numbers, and the pricing. This was very impressive and really helped them obtain a loan. 3) A well written letter accomplicing the application that positively describes the market and your future plans. Please proof read it; a poorly written letter could back fire. Recently, we received one with fourteen typos in one sentence, that one is the winner!
Q. Are some businesses considered more risky?
A. Yes, but we are still able to fund them. For example restaurants and dry cleaners are considered more risky as a result of Federal studies.
Q. Are you finding more people are inclined to go into business themselves as opposed to working for someone else?
A. No question on that one. The days are gone when our adults are employed in factories, large corporations, and government offices, sometimes working for only one employer their whole career. There has been a massive unleashing of such persons because of our lack of jobs, and many of them are out in the private sector trying to start their own businesses. It's both sad and exciting at the same time. For this reason, the SBA must provide more loans to the 27 million small businesses that can fuel our economy.
Q. Now let us talk real practicality. We are in a credit crunch like never before. How has this affected your success rate?
A. You hit the nail on the head. We are exclusively in a credit crunch, and I am seeing the lenders requiring better credit reports. Fortunately, we are not involved in the toxic sub-prime mortgage fiasco and have funds to loan. But remember they are supervised by the SBA and the big problem is the secondary market has shut down. Although this makes it more difficult, but we are still very veteran friendly and giving special consideration to them. We continue to loan to veterans, several a day, and plan to do so in the future
Q. Overall, how would you rate the program?
A. It's a great and well-deserved program. If I were to improve it, I would increase the outreach so more veterans knew about it.
Q. Thank you for your time.
A. My pleasure.