Veterans aren’t getting the loans they need to start a business

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Entrepreneurship among veterans appears to be declining despite extra attention from many banks and credit unions.

Veterans that operate small businesses are more likely to face financing shortfalls than lifelong civilians, according to a report released late Thursday by the Small Business Administration and the Federal Reserve Bank of New York.

The findings surprised many small-business lenders.

“I was definitely shocked” by the results, said Tom Pretty, who heads SBA lending at the $312 billion-asset TD Bank. “TD values veterans and their services. We definitely try to do more for them.”

The report found that the self-employment rate for veterans has declined by 33% over the past 20 years. Veterans, who had higher self-employment rates than lifelong civilians two decades ago, are now no more likely to own their own business.

While the SBA's flagship 7(a) program has flourished in recent years, veteran entrepreneurs have benefited less than other business owners. Since 2010, SBA-guaranteed loans have increased by 48% for veteran borrowers, compared with an 82% increase for other borrowers, the report found.

Veterans received 3,084 7(a) loans, totaling $970 million in fiscal 2018, or about 4% of the program’s total guarantee volume. The fiscal year ended on Sept. 30.

Jamison Flora, a vice president and business banking team leader at the $12 billion-asset Berkshire Hills Bancorp in Boston, said he was also thrown by the findings.

“Berkshire does quite a bit for veterans, through different organizations and through programs inside the bank,” Flora said. “It’s something we live and breathe.”

The report also delved into the factors behind the data, noting that veterans tend to have lower credit scores than other loan applicants, and they typically seek smaller loans, often for less than $100,000.

Nearly half of all veterans denied credit had insufficient credit histories, versus about a third of other rejected applicants, the report stated. Insufficient collateral was a factor for 42% of veterans with financing shortfalls; it played a role in 35% of rejections for other applicants.

Other issues for veterans included too much existing debt, low credit scores and weak business performance.

TD Bank has no problem making small-dollar business loans to veterans, Pretty said.

Over the past two SBA fiscal years, TD Bank made 305 7(a) loans to veteran business owners, totaling $22.1 million, or an average of $72,500 per loan, Pretty said.

Berkshire’s average 7(a) loan size in central New York, where Flora works, is about $110,000.

Pretty and Flora said their business loans to veterans perform as good, or better, than loans to other borrowers.

TD Bank is “very happy” with the performance of the loans it’s made to veterans, Pretty said. “They take their commitments very seriously."

Veterans are typically “passionate” about their businesses “and know how to work hard,” Flora said. “The integrity piece is huge for them, too.”

The report, which was based on data contained in the Fed’s 2017 Small Business Credit Survey, concluded that better education and more mentoring could help close the credit gap between veterans and other borrowers.

“Clearly, aspiring veteran entrepreneurs can benefit from preparation and training to start their businesses and succeed in the marketplace,” Larry Stubblefield, the associate administrator of the SBA’s Office of Veterans Business Development, said in a Thursday press release.

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