By Jason Stverak
After putting their lives on the line for our country, many veterans return home eager to launch small businesses. Yet too often these aspiring veteran entrepreneurs face an uphill battle in accessing capital.
Veteran-owned firms are more likely to be denied full financing and end up draining personal savings to stay afloat – in fact, 72% of veteran business owners use personal savings to fund their companies, compared to 62% of non-veteran entrepreneurs. It’s no surprise that 75% of veterans report that accessing capital is a top challenge when starting or growing a business. These are hardworking men and women with the skills and discipline to succeed, but the financing system isn’t working for them.
This capital gap isn’t due to lack of effort by veterans. Studies show that veteran-owned businesses apply for financing at rates similar to or higher than other firms, yet have approval rates roughly 10% lower than their non-veteran counterparts. They also often receive smaller loans than requested, a “financing shortfall” experienced by 60% of veteran applicants (versus 52% for non-veterans). The reasons vary – many veterans seek only modest loans under $100,000 to get started, amounts that big banks often ignore as not worth their time. Years of service can also mean thinner credit histories or less collateral, thanks to frequent relocations and deployments that come with military life. In short, veterans often face unique hurdles in the traditional lending market, despite having proven their responsibility and work ethic in uniform.
The result of these hurdles is a troubling decline in veteran entrepreneurship. Veterans are far less likely to own businesses today than past generations – the veteran self-employment rate has plummeted by 33% in the last two decades. Fewer veterans starting businesses means fewer jobs created by those veterans and lost economic potential in our communities. We should be alarmed that the share of veteran-owned businesses is shrinking, and we should be doing everything possible to reverse that trend. Unfortunately, one outdated law is actively limiting what could be a big part of the solution.
Credit Unions Want to Help, But An Outdated Cap Is In the Way
One might ask: if banks aren’t meeting veterans’ needs, who can? America’s credit unions – particularly defense credit unions that serve military communities – are eager to fill this gap. These member-owned, not-for-profit institutions often have branches on bases or in towns where service members settle. They understand the military mindset and are mission-driven to serve those who served our nation. Credit unions have a track record of reaching underserved borrowers and are well-positioned to offer the kind of patient, personalized small business lending that veteran entrepreneurs need. As the Defense Credit Union Council (DCUC) noted in a House committee letter, “Credit unions are uniquely positioned to serve veterans as they work to start small businesses as they transition to the private sector.” Removing barriers to credit union lending “would provide additional economic stimulus without costing taxpayer dollars”.
However, an arbitrary federal cap on member business lending is blocking credit unions from fully helping veteran-owned businesses. Under current law, most credit unions are prohibited from lending more than 12.25% of their assets to businesses – a cap set by Congress in 1998. This decades-old restriction, born of a time when credit unions’ role in business lending was much smaller, has now become a hindrance. It forces credit unions to turn away deserving borrowers once the cap is reached, even if the credit union is financially sound and eager to do more. DCUC President/CEO Anthony Hernandez has called these lending limits “arbitrary” and notes they hinder credit unions from fully supporting veterans in their business ventures. In practice, the cap means a credit union might have to say “no more business loans this year” just when a veteran comes in the door with a solid business plan. That is a missed opportunity we can’t afford.
It’s important to note that this cap already has sensible exceptions – for example, loans on one-to-four-family residential rentals and certain agricultural loans are excluded from the cap. Yet loans to veteran-owned businesses do not enjoy any exemption, effectively disadvantaging those who wore the uniform. If we can make exceptions to support farmers, we certainly can do the same for our nation’s veterans. Credit unions remain committed to safe and sound lending (they must maintain strong liquidity and capital ratios regardless), but the law shouldn’t arbitrarily choke off their capacity to serve veteran entrepreneurs.
A Bipartisan Solution In Congress: The Veterans Member Business Loan Act
Fortunately, Congress now has a chance to fix this. In January, a bipartisan group of lawmakers introduced the Veterans Member Business Loan Act (VMBL Act) in both the Senate and House (S. 110 and H.R. 507). This bicameral, common-sense legislation would amend the Federal Credit Union Act to exclude loans made to veteran-owned small businesses from the member business lending cap. In plain terms, if this bill becomes law, any business loan a credit union makes to a veteran entrepreneur won’t count against the cap. Credit unions would finally be free to lend to veteran-owned businesses up to whatever their financial safety and soundness allows, just as they already can for farm loans or mortgages.
The VMBL Act is a rare beacon of bipartisan agreement. It’s championed by Senators Mazie Hirono (D-HI) and Dan Sullivan (R-AK) and Representatives Vicente Gonzalez (D-TX) and Brian Fitzpatrick (R-PA), with support from dozens of co-sponsors across party lines. Lawmakers from Hawaii to Pennsylvania recognize that empowering veteran entrepreneurs is not a partisan issue, but a patriotic one. “Supporting [veterans’] transition to successful business ownership is more than a financial issue; it’s a way to honor their service and contributions,” said DCUC CEO Anthony Hernandez in applauding this bipartisan effort. Congress created this lending cap decades ago, and Congress can right this wrong now – with broad support from both sides of the aisle.
Crucially, this fix comes at no cost to taxpayers. The VMBL Act doesn’t call for new spending or a complex program. It simply removes a regulatory hurdle and lets credit unions use their own capital to do more of what they already do best: make safe, responsible loans in their communities. As Senator Hirono noted when introducing the bill, it will expand access to capital for veteran-owned small businesses by removing arbitrary lending caps that stand in the way. At a time when Washington debates are often mired in partisan gridlock, here is a policy change that is straightforward, bipartisan, and profoundly impactful.
Lifting The Cap: A Win-Win for Veterans And Our Communities
What would lifting the credit union business lending cap for veterans accomplish? In short, a lot of good. It’s not just about one industry (credit unions) or one group (veterans); it’s about unlocking economic opportunity and strengthening communities nationwide. Key benefits include:
- Expanded Access to Capital: With the cap lifted for veteran loans, credit unions could extend significantly more credit to veteran entrepreneurs. This means more affordable loans for vets to start and grow businesses, reducing their reliance on personal savings and high-cost lenders. Instead of being told “sorry, we’ve hit our limit,” veteran business owners would find doors open at their local credit unions.
- Job Creation and Economic Growth: When veterans can secure the financing they need, they invest in their ideas – opening storefronts, purchasing equipment, hiring employees. Their success ripples out to the economy. By some estimates, lifting this cap would enable thousands of new loans to veteran-owned businesses, fueling expansions and new ventures that create jobs and boost local economies. Every veteran business that expands means more workers hired and more dollars circulating in the community.
- Fair and Equitable Lending: This policy aligns veteran business loans with how we treat other crucial loans (like farm loans), ensuring those who served our nation are not disadvantaged by outdated rules. It’s fundamentally a matter of fairness. Veterans shouldn’t have to hear “we can’t help you because of an old quota.” Removing this cap says our nation values veteran entrepreneurs as much as any other engine of economic growth.
- Strengthened National Security Through Empowerment: When we empower veterans economically, we also strengthen our country. Service members transitioning to civilian life will have greater confidence that they can pursue the American Dream of business ownership. This, in turn, can enhance military readiness and recruitment – knowing that service will be followed by opportunity. As DCUC has argued, improving veterans’ economic prospects “provides greater confidence for service members transitioning to civilian life” and even aids retention of those currently serving. In other words, helping veteran-owned businesses isn’t just good economics; it’s good for our all-volunteer force and national security.
In sum, lifting the member business lending cap for veteran loans is a win-win proposition. It empowers the very people who have defended our freedoms, and it channels more capital into productive use in our economy. The cap’s removal would unleash credit unions to do more of what they were created to do: serve their member-owners and uplift their communities. And it would send a clear message to every veteran with a dream that we have their back, just as they had ours.
Time To Back Our Veterans With Action
America’s veterans have already demonstrated unparalleled dedication and sacrifice in service to our nation. Now it’s our turn to ensure they have the economic opportunities they deserve. Congress must seize this opportunity and pass the Veterans Member Business Loan Act without delay. DCUC and the credit union movement have been championing this cause for years, but now we need everyone’s voice. This is not a niche finance issue – it’s about standing up for veterans as they pursue the next chapter in their lives.
Passing this bill would be a common-sense, bipartisan step that empowers veterans, strengthens small businesses, and drives economic growth. How often can we say that about a piece of legislation? It’s rare that a policy can so directly fuel grassroots economic activity while honoring those who served. Lifting the lending cap for veteran-owned businesses does exactly that. It enables more startups on Main Street, more innovation, and more local jobs – all without asking taxpayers for a dime.
Every member of the public who cares about veterans’ success can play a part. Call or write your representatives and tell them to support H.R. 507/S. 110, the Veterans Member Business Loan Act. Ask them to cut through the special-interest noise and do the right thing for veteran entrepreneurs. Our nation made a promise to those who served in uniform – a promise that their return home would be met with opportunity, not obstacles. By removing this lending cap, Congress can fulfill part of that promise, helping veteran-owned businesses thrive.
Veterans answered the call when our country needed them. Now, we should answer their call for fair access to the American Dream of business ownership. Let’s tear down this unnecessary barrier and lift up our veteran entrepreneurs. Congress, it’s time to act – pass the Veterans Member Business Lending Act now.
Jason Stverak is the Chief Advocacy Officer of the Defense Credit Union Council.