Government Financing of Veteran Franchising
So where do I find the pieces to this puzzle?
As I write this article I am also preparing to speak on this topic at the first Entrepreneurial Bootcamp for Veterans with Disabilities (EBV) at St. Joseph’s University on April 9th. The Bootcamp is championed by Ralph Galati, one of those Veterans who help Veterans by doing the right things for the right reasons. I’ve been asked to share what I know about accessing government financing methods for Veterans who want to pursue franchising opportunities. So what do I tell them? What resources are really available for Veterans at the Government level and what’s the real story for accessing these resources?
Some typical Veteran Federal financing questions I get:
1. Who do I talk to about getting my Veteran Federal grant for starting my new business?
Fact: There are no government grants offered to Veterans for franchises.
However, the Veterans Administration does offer a “subsidy” (not a grant) for Veterans in Vocational Rehabilitation (a Veteran needs a 20% minimum disability rating or higher and most importantly having a knowledgeable Rehabilitation Counselor who will champion your goal of self-employment through franchising as a necessity for your Individual Veteran Employment Plan).
Or, if you can legitimately partner with a nonprofit, you could possibly benefit from their federal grant if your franchise had something to contribute to their business model. But structuring an “arm’s length” partnership with a non-profit can be very tricky from a federal tax perspective. Beware of “private inurement”!
2. Who do I talk to in the Federal Government about getting my Veteran business loan for starting my new franchise?
Fact: The Federal Government doesn’t offer loans to Veterans for franchises. The Small Business Administration only offers “guarantees” through Banks who in turn actually make the loans to Veterans under existing small business programs.
However, you can at least find out who these banks are by requesting a list of active SBA lenders available through your regional SBA office. Just ask for the quarterly SBA lending report from your SBA Veteran Regional Veterans Officer. He/she is not allowed to give a specific recommendation or endorse your loan but they can at least direct you to a knowledgeable SBA lender at one or more banks in your area. Before you contact the banks you might want to do research to see if your franchise is included in the SBA Franchise Registry. This will tell you if any SBA lender has financed your selected franchise before (and if it does, you should tell the bank that you approach).
Your Franchisor might also have some good suggestions about SBA lenders as well. Nevertheless, all of these banks have stringent rules on franchise startups, Veteran or not. A 60-70% loan to actual costs is probably the best you can expect.
3. Who do I talk to at the State level about getting my Veteran business loan for acquiring a franchise?
Answer: State Economic Development Agency
Fact: There are State governments that offer Veterans attractive loans for acquiring franchises
State of Maryland
Veterans can solve their financing gap needs for their franchise acquisition with State Government financing. Veterans can and should look to the State level for Veteran and franchise finance. In Maryland for example, the State offers a 0% loan program up to $50,000 for Veterans starting small businesses. Just as important, they offer loans to acquire an existing franchise if the borrower is unable to obtain adequate business financing on reasonable terms through normal financing channels. So at least in Maryland there are a couple of important puzzle pieces. Check out your own State, you might be surprised.
4. Who do I talk to at the local level about getting my Veteran business loan for acquiring a franchise?
Fact: Local government can offer Veteran attractive loans for acquiring franchises
Community Development Financial Institution (CDFI)
A CDFI receives some of its funding from the Department of Treasury for use in local economic development. Although they don’t specifically target Veteran loans, many would love to support Veterans and they offer very competitive terms. To find one, just google “CDFI” and your “location”. A CDFI might also be interested in seeing a Veteran partner with a local non-profit development actor as well.
So is there anywhere else Veterans might find more pieces to the Government lending puzzle? I’m not sure, but if you don’t find any, you might want to apply to Ralph Galati’s next EBV Bootcamp which will have plenty of knowledgeable folks who know where some of the pieces are hiding.
Good luck wherever you look!
VBS Founder and Managing Director, Jim Mingey, is a decorated Vietnam veteran raised from a proud military background. An entrepreneur for more than 35 years, Jim can relate on a personal level to the needs of the veteran small businessperson, and possesses the practical knowledge to implement his experience in today’s market. Jim participated in the EBV Program at Purdue University, is a mentor at American Corporate Partners, developed the first approved franchise training program for the Vocational Rehabilitation and Employment (VR&E) Program at Veterans Administration, and was instrumental in forming the first equity fund in the United States exclusively for veteran owned small businesses and franchises: The Veterans Opportunity Fund. Jim intends to keep on ‘advocating’ for veterans in franchising.