The Ultimate Guide to Navy Federal Business Loans

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Everything You Need to Know About Navy Federal Business Loans

Some veterans and retired members of the armed forces dream of one day starting their own business, but one thing tends to stand in their way: the ability to get funding for their business.

Finding business loans can be especially difficult for these members of the business community because they might have a shorter business track record or none at all.

That’s where lenders like Navy Federal Credit Union come in.

Since 1933 the Navy Federal Credit Union, a nonprofit organization, has been serving the armed forces, veterans, and their families. Their mission of being the “most preferred and trusted financial institution serving the military and their families” still rings true today.

In this guide, we’ll walk through the details of each Navy Federal business loan available. Let’s get started.

How to Qualify

Who Can Get a Navy Federal Business Loan?

Not everyone is eligible for a Navy Federal business loan, as they are only available to Navy Federal members.

If you’re not already a member, you need to make sure that you qualify for membership before you take the time to apply.

You can become a Navy Federal member if you fall into one of these categories:

  • Veteran, retired, or active duty member of the armed forces (Army, Navy, Marine Corps, Air Force, Coast Guard, National Guard, Department of Defense)
  • Reservist member of the armed forces
  • Spouse of a Navy Federal member
  • Child of a Navy Federal member
  • Parent of a Navy Federal member
  • Sibling of a Navy Federal member
  • Grandparent of a Navy Federal member
  • Grandchild of a Navy Federal member
  • Other household member of a Navy Federal member

To become a member, you simply have to provide your social security number, your driver’s license or government ID, your current home address, and your credit card or bank account numbers to add funds to your account.

See Your Business Loan Options

The 5 Cs of Credit

Once your membership status is established, you’re almost ready to start applying for one of their business funding options.

But first, you’ll just have to see if your business meets the five Cs of credit to qualify for a Navy Federal business loan.

While they may not have the same name at other financial institutions, these criteria are pretty standard among lenders to decide if you qualify for funding, how much funding you qualify for, and what terms you’ll receive.

Here are the five Cs of credit, according to Navy Federal.

    Capacity

    The most important of the five Cs of credit for Navy Federal, capacity signals your business’s ability to pay back whatever funding you apply for.

    Navy Federal will look at your business’s financial health and size in order to determine whether lending to you is a good idea.

    Capital

    As law prohibits Navy Federal from providing 100% of your business’s costs, you will need to demonstrate that your business has other forms of capital.

    Whether it’s equity loans, capital from investors, or any other type of funding, Navy Federal will evaluate how much access you have to capital to judge whether they can fulfill your loan amount request.

    Collateral

    Collateral will strengthen your application by demonstrating your business’s ability to pay back the loan. If your collateral comes in the form of property, your loan request can’t be more than 80% of the property’s worth. Additionally, if you qualify for a loan, collateral can help you secure funding at a lower APR.

    Essentially, this collateral acts as a guarantee that will mitigate any risk Navy Federal takes on by lending to your business. As such, you’re more likely to secure funding and secure it at a lower APR. However, if you have to default on a loan, that will mean that whatever you put up for collateral will be at risk.

    Conditions

    By “conditions,” Navy Federal means market conditions. When you apply for a Navy Federal business loan, you’ll need to be able to show that the market is good for your particular business. What’s the current demand for your business’s product or service? Is there a projected growth in demand for your business’s product or service? Do you have any big competitors that might inhibit your ability to pay back your loan?

    These are all questions that Navy Federal will be asking when you apply for a business loan.

    Character

    The fifth C of credit, character, encompasses a lot—they’ll look at your leadership style, your education, and your general impression.

    Most of all, they’ll look at your personal credit score to see how you manage your own personal finances. You’ll also have to fill out a personal financial statement for your business loan application.

Types of Navy Federal Business Loans

What can a Navy Federal business loan be used for, exactly? Well, the answer to this question actually depends on what type of Navy Federal business loan you secure.

Navy Federal offers five different types of small business loans, each of which will have their own uses and restrictions attached.

We’ll review the five types of Navy Federal business loans and how you can use them to finance your business.

Term Loans

With Navy Federal’s term loans, you can finance a one-off asset—commercial equipment, inventory, technology, etc.—or increase your business’s overall working capital.

These loans are available for either purchases or refinancing. Plus, there is no prepayment penalty if you are able to pay off your loan ahead of schedule.

Commercial Vehicle Loans

Navy Federal offers competitive rates on business auto loans. If you need to buy a vehicle in your business’s name, a Navy Federal vehicle term loan can provide a majority of the vehicle’s worth. For a business vehicle loan, you can get up to 100% for a new vehicle and up to 90% for a used vehicle. These vehicles are typically cars, light-duty trucks, and SUVs. For a commercial vehicle loan—think commercial, heavy-duty, or “special use” trucks and vans—you can get up to 80% for a new vehicle and up to 75% for a used one.

Again, there is no prepayment penalty, so you won’t be punished for paying ahead of schedule.

Business Lines of Credit

Every small business should have a business line of credit in their back pocket—it functions like a more powerful business credit card, providing backup credit if you need fast capital, but often offers lower APRs than a credit card. These lines of credit are revolving, meaning once you pay back what you’ve spent, your line of credit resets back to your credit limit.

Navy Federal offers business lines of credit as a short-term option for businesses that need to manage cash flow gaps, cover unexpected expenses or emergencies, capitalize on growth opportunities, and more. Their rates will depend on your creditworthiness and the Market Prime Rate, and additional costs such as annual and origination fees may apply.

Commercial Real Estate Loans

Navy Federal offers commercial real estate loans for business owners to buy a variety of commercial-use property types.

For these loans, Navy Federal offers multiple repayment terms for you to choose the best payment setup for your business.

Additionally, Navy Federal commercial real estate loans don’t come with a prepayment penalty, so you won’t be penalized for paying early and avoiding extra interest.

Investment Property Loans

Finally, Navy Federal offers small business loans in the form of investment property loans. If you’re planning on buying a property in order to earn a return from it—think becoming a landlord or house-flipper—this will be your go-to loan type.

These loans come with competitive APRs and no prepayment penalty. Navy Federal will apply standard mortgage practices, and your property will be titled in your own name.

You’ll also get a variety of payment terms to choose from, so you’ll be able to pay back your Navy Federal investment property loan on a schedule that works best for your business.

Advantages and Disadvantages of Navy Federal Business Loans

Advantages

So, what makes Navy Federal business loans stand out from the crowd of choices you have for funding your small business?

Well, with so many different loan categories, there’s one overarching perk to Navy Federal business loans that you don’t frequently see elsewhere.

    No Prepayment Penalties

    One of the main reasons you should consider Navy Federal business loans (if they’re available to you) is that they don’t come with a prepayment penalty.

    This feature could end up saving you and your business a lot of money.

    Imagine that you’re paying back a loan with a pre-determined payment schedule. You’ve planned it all out based on your projected revenue for the amount of time you have to pay it back. But then, business begins to do unexpectedly well, and you’re able to pay off your loan earlier than you originally expected and agreed to.

    Because some lenders rely on the interest they charge you for paying off your loan over the loan term, they often charge you if you pay your loan off early. This is to make up for the fact that they’re losing those interest payments you would’ve made if you weren’t able to pay early.

    The fact that Navy Federal won’t penalize you for paying off your business loan early could be a game-changer, especially if you’re anticipating an upward trajectory that could allow you to pay off your loan earlier than expected.

Disadvantages

You may be thinking, This all sounds great, what’s the catch?

Unfortunately, no lender is perfect. We normally say this because for-profit lenders have to, well, make a profit from lending to you. However, Navy Federal is a special case. Because they’re a nonprofit entity, they don’t have to make as much of a profit as other lenders. Nonetheless, this comes with its own difficulties. Let’s get to the bottom of the main downside of getting a Navy Federal business loan.

    Inaccessibility

    Navy Federal business loans’ inaccessibility is their main disadvantage. And not just because they’re only available to members of Navy Federal, but also because of the symptoms that come from getting a business loan from a small, nonprofit lender.

    While nonprofits might, in theory, prioritize consumers over profit, due to scarcity of resources, they often end up causing some customer dissatisfaction. Navy Federal is no exception, and reviews of their customer experience are often quite negative.

    Be sure to keep this in mind if you’re considering a Navy Federal business loan.

Alternatives to Navy Federal Business Loans

Even if you’ve decided not to go with a Navy Federal business loan, you still have plenty of strong business financing options to choose from.

And some of them also boast no prepayment penalties, just like Navy Federal business loans.

Before you move onto alternative lenders that will meet your financing needs, first explore traditional banks that you might qualify for. Two top options are Wells Fargo business loans and SunTrust business loans.

For a Veteran-Focused Small Business Lender: StreetShares

If you’re looking for lenders that specifically offer veteran business loans, you should consider StreetShares.

In fact, we recommend that you start your business funding search with StreetShares. This lending company was founded by a veteran, and one of their top priorities is helping veteran-owned small businesses find the funding they need.

StreetShares offers term loans and contract financing products.

And all of StreetShares loan types come with many of the perks that Navy Federal business loans boast. In fact, none of them have a prepayment penalty.

However, their loans come with one notable downside: Unlike with Navy Federal business loans, with StreetShares term loans and lines of credit, you won’t be able to choose your payment schedule. StreetShares will deduct an automatic, fixed weekly payment from your bank account for your loan payments, so you won’t have the payment flexibility that comes with Navy Federal.

For Term Loans: OnDeck Capital

The alternative lender OnDeck Capital offers great alternatives to Navy Federal’s term loans.

OnDeck is an online lender that works with small business owners to fund them with both short-term and long-term loans with APRs as low as 8.5%.

Additionally, though they don’t offer loans specific to property investment or commercial real estate, OnDeck’s term loans are great options for funding your business’s real estate purchases, expansion, and renovation.

Plus, OnDeck is willing to work with business owners with a FICO score of at least 500 and who have been in business for a year or more. As such, OnDeck’s term loans will be a bit more accessible than Navy Federal’s.

For Business Lines of Credit: Kabbage

Kabbage specializes exclusively in business lines of credit.

They’ve perfected the business line of credit, and their product is a great alternative to the business lines of credit that Navy Federal offers. For your remaining loan amount, Kabbage will charge you a flat monthly fee of anywhere from 1.5% to 10%.

The best part? Kabbage doesn’t have a minimum FICO score requirement, so their business lines of credit will be even more accessible than Navy Federal’s are.

For Vehicle Financing: Funding Circle

Finally, for an alternative for Navy Federal’s commercial vehicle financing, look into Funding Circle, a lender that offers stellar equipment financing.

They lend to borrowers at rates as low as 4.99% APR, and they don’t have a minimum revenue requirement, which is pretty rare for a lender.

Essentially, the equipment financing that Funding Circle offers is a broader version of Navy Federal’s commercial vehicle loan that covers various types of equipment you might need to run your business.

See Your Business Loan Options

The Bottom Line

Navy Federal business loans can be a viable option for your business, but if you’re not a qualifying member, you’ll have to look for another option.

There are so many business financing options to choose from, so the perks that Navy Federal small business loans offer can definitely be found elsewhere. And oftentimes, you’ll be able to find those perks without the downsides that Navy Federal business loans carry.

At the end of the day, you know what’s best for your business, and now that you have all of the pertinent information on Navy Federal business loans, you’ll be able to decide for yourself if they’re the right choice for financing your small business.

Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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