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VeteransGuide_Body.jpgby Iris Dorbian.


Starting a small business can be a struggle for anyone. Finding the right product or service to sell in addition to writing a business plan and getting the financing together are tasks that can wear down the hardiest of souls. For veterans with little civilian workplace experience, it can sometimes be a formidable challenge. However, in a climate in which, according to the U.S. Bureau of Labor Statistics the unemployment rate for veterans who served on active duty in the U.S. Armed Forces since September 2001, was 12.1 percent in 2011, a figure higher than the general unemployment number in the U.S., owning and operating a small business can be a viable alternative to the standard 9 to 5 job. But there are still hurdles to overcome.


Get certified as a veteran-owned company

This official designation helps veterans gain access to federal set-aside contracts and Fortune 1000 opportunities. Click onto this link at the Department of Veterans Affairs (VA) to find out further information.


Contact SBDCs in your community

Small business development centers (SBDCs), which provide educational services to business owners and aspiring entrepreneurs and are administered by the SBA are excellent resources for  veterans because they offer a wealth of free information from experts on topics such as business strategies, product development and marketing.



However, not all SBDCs serve businesses in every stage of development, says Claudia Viek, CEO of California Association for Micro Enterprise Opportunity (CAMEO), a statewide network of entrepreneurial training programs and microlenders that also targets veterans seeking to start a business. “Sometimes they don’t know what to do with a pre start-up,” she says. “They like to work with you if you’re already in business.” However, she adds that because the SBA is scheduled to have funding in 2013 for more veteran programs, small business development centers (SBDCs) are “ramping up right now with a ‘boots to business’ program.”           


The SBA website—where one can also find links to SBDCs and women’s business centers is a great resource for veterans because it offers free online business plan templates that veterans can use to develop their own business plan.


Approach veteran-friendly nonprofits that offer grants or loans to business start-ups

To accommodate the heavy concentration of veterans living in California, particularly in the Los Angeles, San Diego, and Fresno areas, CAMEO, with corporate sponsorship, has started a pilot initiative that provides training assistance and grant money in the range of $20,000 to $35,000 to veterans. Although CAMEO itself doesn’t offer loans, Viek points out that they do work with community development financial institutions (CDFI) that lend to startups and businesses.


If a veteran wishing to launch a business came to CAMEO, Viek explains that he or she would be directed to one of 86 organizations in its network that provide business assistance, training, and lending. “If they were looking specifically for a loan, we would direct them to our website as well as to identify a CDFI their community,” she says. “The CAMEO’s website has a listing and a map of all the organizations in California that provide these services and they aren’t veteran-specific. They provide services to all entrepreneurs but they have a specific program for vets as well and have created relationships with veteran organizations and communities.”


One notable nonprofit that could be a significant boon for entrepreneurial-minded veterans is Association of Enterprise Opportunity (AEO), a membership organization that supports microbusiness development in the U.S. “They represent people of all organizations all over the U.S who provide training, business assistance, and services,” says Viek.


Search online for resources

“There are a growing number of resources for veteran entrepreneurs,” says Scarlet. If you go online, “you will find a plethora of agencies and programs for entrepreneurs in general and for vets in particular.” Here are a few links she highly recommends for veterans interesting in becoming small business entrepreneurs:


Another resource for veterans to check out is VetBizGo, a resource and referral microsite that targets veterans in business. Launched by Dr. William Osgood, an entrepreneurial expert who’s written numerous books on small business development and is also an Army veteran, the microsite has a learning module called 10 Steps to Venture Success program. Here, explains Dr. Osgood, veterans “can learn both online and offline as well as work with an experienced business development mentor.”


Other tips: 


See if your state has Small Business Technology and Development Centers (SBTDCs). (For instance, North Carolina has one—see link). SBTDCs, which are partnered with SBDCs are resources that help grow and develop small businesses. Says Scarlet: “They can help with almost everything related to starting and running a business—from helping you with your business plan to identifying and preparing you for federal business opportunities;”


Attend Syracuse University's Entrepreneurial Bootcamp for Veterans with Disabilities. “It's powerful, it's informative and it's free to attend,” notes Scarlet; and,


Attend the annual National Veteran Small Business Conference where you can meet with and pitch your company to hundreds of federal agencies and Fortune 500 companies.

QAcharlesgreen_Body.jpgby Jen Hickey.


Business writer Jennifer Hickey recently spoke with Charles H. Green, who spent 30 years in the commercial banking industry and is now the executive director of the Small Business Finance Institute, an Atlanta, Georgia-based nonprofit that helps business owners improve financial management and access to funding through annual conferences, monthly workshops, and a weekly webinar series on various topics. He is also the author of the SBA Loan Book, now in its third edition.


JH: What role does a bank or lending institution play in administering SBA loans?

CG: The Small Business Administration (SBA) does not make the loan directly but serves as a guarantor for the loan up to a certain percentage depending on the program. The intention of the program is for lenders to make loans under their existing lending criteria or policy. If a loan can be approved without the guaranty, it should be. If it cannot be approved due to being outside loan policy and is a prudent loan likely to be repaid, the lender can proceed with the guaranty. The guaranty is intended to shore up a loan for borrowers who would not otherwise be able to get a small business loan, as their collateral levels, requested leverage, credit score, or repayment terms, etc. fall outside that criteria.


QAcharlesgreen_PQ.jpgJH: How is an SBA-backed loan different from a traditional bank loan?

CG: Traditionally, bank regulators have discouraged financing beyond the horizon of which would be a safe risk. SBA-backed loans allow for longer term financing that banks would be discouraged from giving based on existing lending criteria. For example, an SBA loan allows a company that wants to purchase a building for manufacturing or retail purposes to finance the loan for up to 25 years. Bank regulation sees that as a long time to take a risk and commit money without knowing what the cost of funds will be, how well the business will do over time, etc. Yet, it’s impractical to think an asset that will be useful over 20 years can be repaid in three years. The SBA guarantee encourages the bank to make loans that would otherwise not be possible due to the regulatory environment.


JH: What types of provisions must be met for the most common types of SBA loan programs?

CG: The most commonly used is the 7(a) program, which provides a 75 percent guarantee for loans up to $5 million and up to 85 percent for loans under $175,000 until the loan has been paid in full. A loan backed by the 7(a) loan program can be used for any business purpose and the maturity is based on the use of proceeds. The loan can have a maximum term of up to 25 years if used for property and up to 10 years for equipment financing and seven years for working capital.


The second most used program is the Certified Development Company (CDC)/504 loan program, which provides subordinate financing directly to the small business and is administered locally through SBA-licensed nonprofit CDCs. A 504 loan can only be used for capital improvements, like the acquisition or construction of capital assets such as property or major equipment. It is not a guarantee like the 7(a) program but a funding augmentation. The SBA actually participates in the funding of this program by selling debentures, which serve as a subordinate piece of the total financing (up to 40 percent), while the CDC funds a minimum of 50 percent of the transaction.


The SBA Express program allows for the funding of much smaller initiatives, up to $350,000 ($500,000 for qualified veterans) and carries a smaller guarantee by the SBA, generally 50 percent (75 to 80 percent for veterans). While the program target is working capital, it can be used for any business purpose. Express loans are fast-tracked; there are fewer forms required from lenders to the SBA, and lender is allowed to use their own loan documents to close the deal.


JH: What’s the difference between a preferred, standard, and certified SBA lender?

CG: This refers to the status or recognition of the lender by the SBA. A “standard” lender is one that is qualified to make an SBA loan, having entered into an agreement with the agency that allows it to submit transactions for review and receive a guarantee on the credit if approved by the SBA. Once the lender gets some experience and demonstrates its ability to follow the rules and generate decent volume, it can become “certified,” which puts its deals in the front of the line. With “preferred” status, the SBA actually allows the lender to make the decision whether to use the guarantee or not, and in many cases, the loan can be approved the same day. With standard and certified lenders, the SBA checks for eligibility and also reviews the lender's application to ensure the loan is underwritten with a high degree of certainty that it meets SBA credit standards. With a preferred lender provider (PLP), the SBA only checks the lender's justification of eligibility for the borrower, not their underwriting.


JH: Explain some of the different eligibility requirements for obtaining an SBA loan?

CG: A small business has to be “active,” meaning that it is directly involved in economic activity. Businesses involved in passive investments, third-party financing, or speculative business activity would not be eligible. And the loan must be used for legal business purposes, of which there are restrictions; it cannot be used be used for gambling-related activities, lending, multilevel marketing, real estate investment, charities, among others.


A borrower has to fall under the SBA’s definition of a small business, as described under the North American Industry Classification System (NAICS), which places a limit on specific industries based on number of employees and revenue levels. In general, businesses with fewer than 500 employees, or less than $7.5 million of annual revenue, are considered small businesses, though there are hundreds of differences within those generalizations, depending on the industry. Some have more or fewer employees, while others have a lower or higher revenue ceiling. For example, a car dealership can have up to $33 million in revenue and still be eligible for an SBA loan. It depends on the relative numbers in that particular industry.


The borrower must be a legal U.S. resident (i.e. a citizen or approved status) and has to be current on his/her income taxes and/or child support. In the SBA Business Loan Application, applicants must acknowledge and confirm they are in compliance with several statutes ranging from the Lead Based Paint Poisoning Prevention Act to the Right to Financial Privacy Act. The “other resources” rule states that if a borrower has a certain level of resources available to them, they would not be eligible for SBA financing. So, if a business has more than $2 million in cash, it would not be eligible for an SBA loan since it would qualify for financing elsewhere.


JH: Is there any additional documentation or collateral required for an SBA loan vs. a traditional business loan?

CG: The "paperwork" reputation of the SBA is overblown and concerns lenders not borrowers. The credit decision to make the loan is ultimately made by the bank, although the SBA can decline guarantee for a standard program lender if the borrower really wasn't eligible or didn't demonstrate the ability to repay the loan adequately. A loan may be rejected if, in the view of the agency, the projected financial results can't be justified by either past performance of the business or with the accompanying business plan that sets forth how the financial objectives will be achieved.


The SBA loan program stipulates that if borrower collateral is available, it must be put toward the loan. For example, if the borrower is using loan proceeds to buy a building for its business, then that building would be put up as collateral for the loan. But there’s no firm rule on how much collateral is adequate. The SBA expects the bank to apply the same requirements as they would for any other type of business loan; however, there’s more flexibility with an SBA loan when it comes to collateral, credit scores, etc., if the financial projections are sound and based on real numbers. 


JH: Is it possible for a startup to obtain an SBA loan and, if so, what additional requirements must be met, if any?

CG: Funding startups has been one of the big success stories for the SBA loan program, which has been willing to get involved with small businesses at a younger stage. There are no additional requirements for startups other than providing two years of sound projections to justify the likelihood of repayment, along with a plan for what they plan to do with the money, and how they’re organized to succeed.


JH: What impact, if any, has the 2010 Small Business Jobs Act had on eligibility requirements for SBA loans?

CG: The loan limit of the 7(a) program was increased from $2 million to $5 million and the eligibility standards on several industry sectors were changed, making an additional 122,000 small businesses eligible.


Also, through the 504 program, qualified companies can refinance commercial real estate if the loan was originally made under eligible conditions (meaning a sufficient down payment and acceptable appraisal) without re-appraisal. This temporary capacity for 504 recently expired, but may be revived in early 2013.


JH: Typically, how long is the approval process of an SBA loan and does it vary by loan type?

CG: How fast the loan is processed is often tied to how prepared the borrower is. Borrowers need to think through what they need and what impact the loan will have on their business, how it will improve revenues, and justify how it would improve profits.


If borrowing from a PLP lender, loans can be generally approved online in matter of hours. For CLP lenders, within three days. And usually within 7 to 10 days for a standard program lender. This timeframe is the SBA response, not the lenders. Lenders usually take much longer.


This interview has been condensed and edited.


The opinions expressed are solely those of the interviewee.  As always, you should review the advice of a CPA, financial planner, or qualified professional prior to receiving any business loan.

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