Vets transition from military to civilian life through franchising, but still face financing challenges

December 14th, 2018 by Ritwik Donde

Last year, a report from the U.S. Small Business Administration showed there were about 2.52 million businesses in the nation mainly owned by veterans. The report showed small businesses owned by vets employed 5.03 million people and represented 9.1% of all U.S. businesses.[1]

Franchising presents a fantastic opportunity for the nearly 2.5 million United States armed forces personnel that are currently on active or reserve duty — as it is, 1 in 7 franchises in the U.S. are owned by veterans.[2]

Franchise industry advocates, franchise company executives, and business publications, both online and offline, have been engaged in some serious target marketing as of late. The focus of this seemingly industry-wide lead-generation effort is on the thousands upon thousands of our military men and women who are returning from two wars. So why do veterans make for good franchisees? The answer is simple. Individuals with military backgrounds already have many of the skills that franchisors are looking for to run a successful enterprise – leadership, personnel management experience, determination to succeed, and good decision-making abilities.[3]

An internal analysis of franchise brands conducted by FRANdata earlier this year showed that close to 500 franchise concepts offered varying levels of discounts on the initial fees to veterans interested in opening their own franchised business. These discounts ranged from as low as 1%-2% to as high as a full waiver on initial franchise fees. Most of these franchisors were also part of the IFA’s VetFran initiative, helping veterans transition to civilian life. Several franchises also have programs for military wives and families.

One of the biggest challenges veterans face when entering the world of franchising is access to capital. According to a recent report by the Federal Reserve Bank of New York, despite similar demand for financing, veteran-owned business applicants were more likely than nonveteran-owned business applicants to experience “financing shortfalls,” where they received less than the amount of credit they sought. They also had lower approval rates at the most popular lenders, and the amount of SBA-guaranteed loans that they have received has increased more slowly over time than for non-veterans.[4] The U.S. Small Business Administration offers various support functions for veterans as they enter the world of business ownership. Veteran franchisees can use SBA tools like LenderMatch to connect with lenders. In additional the SBA makes several considerations for veterans through programs like SBA Veterans Advantage, which offers guarantees on loans approved to businesses that are at least 51-percent owned by veterans or military spouses; or The Military Reservist Economic Injury Disaster Loan Program which provides loans of up to $2 million to cover operating costs that cannot be met due to the loss of an essential employee called to active duty in the Reserves or National Guard.[5]

Since 2011 to 2014, more than 200,000 military men and women have started careers in franchising and more than 5,600 became franchisees.[6] With programs like VetFran and the White House Joining Forces Initiative, that number is set to increase even more, but there are question marks still around financing these new businesses.

[1] WEAU News

[2] FranchiseHelp

[3] U.S. Department of Veterans Affairs

[4] Federal Reserve Bank of New York

[5] U.S. Small Business Administration

[6] International Franchise Association

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