Press Release

Veteran-Owned Businesses Face More Acute Financing Shortfalls and Lower Approval Rates than Nonveteran Counterparts

Report Presents Most Substantial Data Yet on Veteran-Owned Businesses' Capital Access Challenges; Cites Smaller Loan Requests, Higher Credit Risk, and Lack of Information as Possible Causes
November 08, 2018

The Federal Reserve Bank of New York and the U.S. Small Business Administration (SBA) today issued the report Financing their Future: Veteran Entrepreneurs and Capital Access. The report provides a comprehensive look at the state of entrepreneurship for military veterans by outlining current literature on veteran entrepreneurship, and presenting new small business credit data from the Federal Reserve Banks' 2017 Small Business Credit Survey (SBCS). The 2018 SBCS is currently being fielded, and small business owners can help further address information gaps on small business financing by taking this survey.

"To solve a problem, it's critical first to understand its scope. This report presents the most substantial evidence to date of the challenges veteran-owned businesses face in accessing capital," said Claire Kramer Mills, New York Fed assistant vice president. "By understanding how much credit veteran-owned businesses are seeking, where they're applying, and the nature of their financing challenges, policy makers and service providers can better help veterans overcome financing shortfalls."

"Clearly, aspiring veteran entrepreneurs can benefit from preparation and training to start their businesses and succeed in the marketplace," said Larry Stubblefield, Associate Administrator of SBA's Office of Veterans Business Development. "This report highlights the value of SBA-partnered resources like the Boots to Business entrepreneurship training program, which helps veterans as they navigate the challenges in financing, starting and growing their companies."

The report found that, despite similar demand for financing, veteran-owned business applicants were more likely than nonveteran-owned business applicants to experience "financing shortfalls," where they received less than the amount of credit they sought. They also had lower approval rates at the most popular lenders, and the amount of SBA-guaranteed loans that they have received has increased more slowly over time than for non-veterans. The report explains that this discrepancy in financing experiences could be attributable to the smaller loan amounts that veteran-owned businesses seek, higher credit risk, and lack of information.

Key findings, which can be found in the report, include:

Background on Veteran Entrepreneurship (Previous U.S. Census Bureau literature)

U.S. Census Bureau data show that veterans are less likely to be self-employed today than in the past. When they do start businesses, most are small and often report lower sales.

  • The labor force self-employment rate for veterans has declined 33% over the past 20 years, as compared to a 9% drop for nonveterans.
  • Most (60%) veteran-owned businesses have 1 to 4 employees. These businesses tend to have lower sales than nonveteran-owned businesses of the same size, and this difference holds across industries.

Access to Capital (New SBCS and SBA data)

  • Demand for financing was similar for veteran- and nonveteran-owned businesses (42% and 40% applied for financing, respectively).
  • Despite similar demand for financing, veteran-owned business applicants were more likely to experience a financing shortfall (60%) than nonveteran-owned business applicants (52%).
  • The approval rates for veteran-owned business applicants for loans, lines of credit, and cash advances were about 10% lower than for nonveteran-owned business applicants, irrespective of the lending source.
  • Since 2010, SBA-guaranteed loans have increased by 48% for veteran borrowers compared to an 82% increase for nonveteran borrowers.

Reasons for financing shortfalls (Report conclusions based on new SBCS and SBA data)

The report presents three possible explanations for the discrepancy in funding outcomes for veterans and nonveterans: smaller loan amounts sought, credit report concerns, and a need to seek advice when completing loan applications.

  • 60% of veteran-owned business applicants sought $100,000 or less in financing. Processing smaller loans can be costly for larger lending sources due to fixed transaction costs, so they may be less likely to approve these loans.
  • 61% of veteran-owned businesses had high credit scores, compared to 69% of nonveteran-owned businesses. Also when firms were denied credit, veteran-owned businesses cited insufficient credit history or collateral as reasons more often (47% and 42% respectively) than nonveteran-owned businesses (36% and 35% respectively).
  • Veteran business owners were more likely to submit multiple loan applications, yet had lower approval rates. Observations by SBA officials indicate that business owners may lack understanding of, or preparation for the loan application process.

Research conclusions and forward thoughts

Based on these conclusions, the report cites three ways policy makers and service providers could potentially help veterans overcome financing shortfalls.

  • Encouraging an expanded focus on service to veteran-owned businesses through the Treasury Department's Community Development Financial Institutions Fund, which supports lending to underserved segments;
  • Providing mentorship opportunities to assist veteran entrepreneurs in putting together business and financing strategies before meeting with a lender; and,
  • Raising awareness about the organizations that are currently working to address veteran issues.

About the Federal Reserve Banks' Small Business Credit Survey (SBCS)

The SBCS collects information about business performance, financing needs and choices and borrowing experiences of firms with fewer than 500 employees. Responses to the SBCS provide insight into the dynamics behind aggregate lending trends and about noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses in the United States. The SBCS is not a random sample; therefore, results should be analyzed with awareness of potential methodological biases.

The SBCS includes experiences from firms across all 50 states and the District of Columbia through the joint efforts of the Federal Reserve Banks of New York, Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, Philadelphia, Richmond, San Francisco and St. Louis. The 2017 SBCS collected 14,465 responses in total, 8,169 of which were from employer firms.

In today's report, a business is considered to be veteran-owned if more than 50% of the business is owned by a veteran. Therefore, nonveteran-owned businesses also include businesses owned equally by veterans and nonveterans. In the 2017 SBCS, 6,922 respondents from employer firms shared whether they were veteran-owned or nonveteran-owned. 696 of those respondents were from veteran-owned businesses.

About the U.S. Small Business Administration

The U.S. Small Business Administration makes the American dream of business ownership a reality. As the only go-to resource and voice for small businesses backed by the strength of the federal government, the SBA empowers entrepreneurs and small business owners with the resources and support they need to start, grow or expand their businesses, or recover from a declared disaster. It delivers services through an extensive network of SBA field offices and partnerships with public and private organizations. To learn more, visit

Betsy Bourassa
(212) 720-6885

Carol Chastang
(202) 205-6987

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