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Financing Their Future: Veteran Entrepreneurs and Capital Access

by Sid Sankaran, Small Business Administration, and Jessica Battisto, Federal Reserve Bank of New York
November 8, 2018

This was co-published with the Small Business Administration and the Federal Reserve Bank of New York.

For decades, military veterans have been a vital part of the nation’s business sector—leveraging the valuable skills they gained during their service to start businesses across the country. However, veteran entrepreneurship is facing a generational decline, with younger veterans owning businesses at lower rates compared to past generations. Furthermore, we are now beginning to see veterans owning businesses at lower rates compared to nonveterans.

Declining Rate of Veteran Entrepreneurship

U.S. Census Bureau data show declining rates of entrepreneurship among veterans in the labor force as well as lower business performance for veteran business owners:

  • In 1998, 16 percent of veterans in the labor force were “self-employed,” compared with 12 percent of nonveterans.1 In 2018, that same rate had declined to 11 percent for both veterans and nonveterans (a 33 percent drop for veterans compared to a 9 percent drop for nonveterans).2
  • For both veteran and nonveteran business owners, the vast majority of employer businesses3 have one to four employees. Veteran-owned businesses of this size have 16 percent lower average sales per firm compared to nonveteran-owned businesses, a difference that holds across for industries.

Potential Drivers of Declining Veteran Entrepreneurship

According to interviews with veteran entrepreneurs conducted by the Institute of Veteran Military Families (IVMF)4 at Syracuse University, 75 percent of veteran entrepreneur respondents report encountering challenges as they were starting and growing their business. Among those most commonly cited were social capital—in the form of networks and mentorships—and access to capital.

Demand for and Availability of Financing

While the demand for financing is similar for veteran- and nonveteran-owned businesses, the outcomes differ:

  • 42 percent of veteran-owned businesses reported that they applied for financing in the prior 12 months,5 compared to 40 percent of nonveteran-owned businesses.
  • 60 percent of veteran-owned businesses reported a financing shortfall (obtaining less financing than requested), compared to 52 percent of nonveteran-owned businesses.
  • The loan approval rates for veteran-owned businesses from the top three sources of credit—large banks, small banks, and online lenders—were approximately 10 percent lower than those for nonveteran-owned businesses.
  • According to SBA-guaranteed loan data,6 veteran-owned business financing growth is not keeping up with that of nonveteran-owned business financing. Between 2010 and 2017, SBA-guaranteed loans increased 82 percent to nonveteran borrowers, but only 48 percent for veteran borrowers.7

Reasons for Financing Shortfalls

Among the three possible explanations for why veteran-owned businesses were more likely to experience financing shortfalls:

  • A larger share of veteran-owned businesses (60%) that applied for financing sought $100K or less compared to nonveteran-owned businesses (55%). It can be more costly for larger lending sources, such as larger banks, to process smaller loans due to fixed transaction costs, so they may be less likely to approve these loans.
  • Veteran-owned businesses were less likely to be deemed low credit risks (61% compared to 69% of nonveterans) and more likely to be deemed medium credit risks (33% compared to 24% of nonveterans)—possibly the result of the challenges that come with building a credit score and history while frequently moving and traveling overseas for military life.
  • According to observations by SBA officials, many veteran entrepreneurs seek out assistance after they have already attempted and failed to obtain business financing.8

Research Conclusions and Forward Thoughts

Three ways for policy makers and service providers to potentially help veterans overcome financial shortfalls include:

  • Easier debt financing through Community Development Financial Institutions (CDFIs), which provide affordable capital to build local communities, and private and local initiatives, including those by JP Morgan Chase, Bank of America, and the state of Illinois.
  • Mentorship by multiple organizations, including the SBA, to assist veteran entrepreneurs with putting together a financing strategy and understanding the lending process.
  • Awareness and marketing to spread awareness of the difficulties veterans face in obtaining business financing as well as of the many organizations that exist to propel veteran entrepreneurship.


1 May 1998 Current Population Survey.
2 May 2018 Current Population Survey.
3 Businesses with hired employees.
4 Nyasha Y Boldon and Rosalinda V. Maury. 2017. Bridging the Gap: Motivations, Challenges, and Successes of Veteran Entrepreneurs.
5 Approximately 2016 Q4 through 2017 Q4.
6 The SBA does not provide direct loans, but loan guarantees. Direct loans are made at the discretion of lenders, who then pay a fee for the SBA guarantee. For more information on SBA loan programs visit http://www.sba.gov.
7 SBA demographic lending data is completely self-reported by the lender (i.e. they report how much they lent to veterans and nonveterans).
8 Based on interviews with SBA’s OVBD personnel.
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