APPROACH AND METHODOLOGY
The Disabled Veterans Assistance Foundation (DVAF) has created a unique solution to address the critical need for access to financing for disabled veterans who want to start, sustain or grow a small business.
DVAF is the only national non-profit organization that provides micro-financing to disabled veteran business owners. The Foundation offers microloans with interest rates from 0 to 4.5 percent. While micro-lending has been embraced around the globe to help individuals and businesses get a financial 'jump start' with a small loan, it has never been used in a targeted way with veteran entrepreneurs. This approach can be especially effective during these difficult financial times when traditional lending is often not an option and small and timely loan infusions are vital to helping veteran-owned small businesses sustain their operations or grow.
DVAF will partner with a large firm in the professional services sector to offer pro-bono mentors to disabled veteran entrepreneurs who receive microloans. Providing expertise in specific industry sectors can help loan recipients build and grow their businesses. Many will also gain from basic business assistance with budgeting, purchasing and complying with state and federal government regulations.
DVAF provides a stepping stone to help these entrepreneurs get on sound financial footing and a growth path that will enable them to eventually participate in existing Veterans Affairs and Small Business Administration small business loan programs.
During its start-up phase as a local, California-based non-profit organization, DVAF has awarded microloans at interest rates ranging from 0 percent to 4.5 percent, depending upon the ability of the disabled veteran business owners to repay the loans.
One of the exceptional features of the DVAF microloan program is its ability to grow and keep giving. As every loan is repaid, the fund is replenished and another loan is given to another eligible disabled veteran small business owner. Because DVAF is a nonprofit foundation, the interest is also returned to the loan pool.
As a national organization, DVAF will support 100 Veteran Entrepreneurs before next Independence Day, 2012 as a step toward supporting veterans' economic independence.
DVAF will raise $1 million to capitalize its loan pool and fund operational costs of reaching out to prospective applicants, vetting the applicant pool and processing loans of eligible veterans.
DVAF will work with Veteran Service Organizations and others to conduct outreach to prospective applicants for the loan selection process.
The loan selection process includes these factors:
- Each veteran must have been Honorably Discharged.
- The veteran applicant must also have a Department of Veteran Affairs certified service connected disability.
- Applicants must submit their business plan and prove that their businesses have growth potential. As with traditional lenders, DVAF considers past and current financials as important indicators of future growth.
- Applicants are dedicated to hiring veterans.
- Potential of loan awards to have a significant positive impact on the business.
Interest rates will range 0 percent - 4.5 percent. Average term for loans up to $10,000 is 36 months. Loan repayments of principal and interest are cycled back into the loan fund account and used for future loans.
IMPLEMENTATION, TIMELINE, AND DELIVERABLES
Over the next 4 months, DVAF will work to fund the loan pool and operational infrastructure required to sustain a national program that can efficiently and effectively deliver microloans to eligible candidates across the country.
DVAF will join with a professional services partner to provide pro-bono mentoring for loan recipients in their industry sector.
Around Veterans Day 2011, DVAF will undertake a national launch, showcase its funding partners and announce that it is taking applications to fund 100 loans between that date and July 4, 2012.
Between December 2011 and May 2012, DVAF will conduct outreach, vet loan recipients and issue microloans on a rolling basis.
Before July 4, 2012 DVAF will hold an event to showcase its 100 veteran entrepreneurs.
Challenges for Veteran Entrepreneurs: Access to Credit
There has been a 25 percent decline in the number of veteran-owned small businesses since 2001 - while every other small business category has increased. These businesses are particularly critical since veterans are committed to hiring other veterans and because small business generally has been an engine of job creation.
Small businesses 'employ nearly one-half of all Americans, and they account for about 60 percent of gross job creation, and historically created more jobs than larger firms at the start of economic recovery,' according to a 2010 report by the Federal Reserve Bank of New York.
To help create and support more veteran-owned small businesses; micro financing is needed to address the numerous challenges that currently exist, including:
- Too many disabled veterans do not qualify for traditional loans and/or cannot afford the high interest rates of conventional lenders.
- Younger veterans who have recently left the military have not yet established a strong work history so they have even greater difficulty obtaining business loans or credit of any type.
- The average current small business loan is carrying an 8.38 percent interest rate according to a May 8 report released by the National Federation of Independent Businesses (NFIB).
- Commercial banks surveyed by NFIB expect additional restrictions on small business loans, according to the same study.
- More than 50 percent of all small business loans are rejected each year.
- The Department of Veterans Affairs and the Small Business Administration offer small business loan programs (at 8 percent interest or higher) and guarantee to lenders that the loans they make to qualified veterans will be repaid, but veterans must first meet the qualifications for a traditional loan.
- Even veteran business owners with federal contracts in hand and guaranteed payments have been repeatedly denied loans at their local banks and credit unions.
-About one-third of small business owners use credit cards to access capital. While new laws limit interest rates on consumer credit card debt, small business owners using credit cards to access operating capital are not included. Those rates are currently at a 13-year high of 19.1 percent.
- The length of time it traditionally takes for conventional lenders to process business loans is often a significant problem for entrepreneurs. If capital is needed to cover payroll, for example, a loan processing period of even just a few weeks can be extremely damaging to a small business.