Service Members & Veteran’s Guide to Starting a Business

America’s veterans have a long tradition of entrepreneurship. After World War II, 45% of military veterans came home to start their own companies, as did 40% of Korean War veterans.

Since then, the percentage of self-employed veterans has fallen to 4.5%, but veterans remain more entrepreneurial than the average person. According to the Small Business Administration, veterans are 45% more likely than non-veterans to become business owners. Almost one in ten new businesses is veteran-owned.

Veterans have a few natural advantages that translate to unique business opportunities not readily available to non-veterans.

Many veterans leave the service with a top-secret or at least a secret clearance already in hand. A top-secret clearance can be difficult and expensive for businesses to obtain, with an average cost of $3,000 to $15,000 per investigation. Holding a high-level clearance means the government is much more willing to grant you access to a myriad of sensitive or classified technology, operational and intelligence information. This could open up opportunities in government contracting and consulting.

You don’t have to contract directly with the federal government. It’s usually easier to break into business-to-government (B2G) entrepreneurship as a subcontractor than as the prime contract holder.

This is because federal procurement officers are required to work with contractors and to ensure that enough contract and subcontract work goes to minority and disadvantaged businesses.

They are evaluated on meeting specific quotas. Among them are quotas for veteran-owned and service-disabled veteran-owned businesses (SDVOBs).

Many veteran entrepreneurs have found success marketing to other veterans directly. Examples include the Black Rifle Coffee Company, 9-Line clothing and Gruntworks. Each of these businesses carved out a niche with their respective much larger industries (coffee and clothing) by appealing specifically to military veterans and first responders.

But it’s not necessary to limit yourself to the military and veteran market. Veterans founded FedEx and Enterprise Rental Cars, both of which are household names well beyond the military and veteran market.

Veterans, especially service-disabled veterans, have a natural advantage in pursuing government contracting and subcontracting opportunities. Veterans in any industry can seek out companies who are federal contractors and offer their goods and services as subcontractors.

All federal contractors are expected to assign a certain percentage of subcontractor awards to small and disadvantaged businesses, including minority-, women-, veteran- and service-disabled veteran-owned small businesses.

These prime federal contractors are under constant pressure to show federal procurement officers and OSDBU representatives that they are meeting their quotas. By going through the verification process and becoming certified as a veteran-owned or service-disabled veteran-owned small business, you can set yourself apart from the competition right away.

To get started in B2G contracting, start your business as a corporation or limited liability company (LLC), get ramped up with inventory and staff so you can deliver the goods and services you are selling and get certified as a veteran-owned or service-disabled veteran-owned business.

If you have training and experience working with and repairing high-tech equipment in the military, you have a leg up on the competition already. It can be challenging and expensive for civilians to get the same training you got for free in the military, and this is a significant advantage when you launch your business.

Many veterans who go into technology and engineering also go into government contracting, leveraging their other advantages as a veteran-owned business, often with pre-existing security clearances.

As your business grows, these advisors can help you fill critical vacancies and may even be investors in your business themselves. You can find potential board members within your local Chamber of Commerce, from alumni board listings and from startup incubators that may be operating near you.

The SBA primarily provides loan guarantees to banks and other lenders so they'll be more willing to lend to veteran business owners. The SBA usually doesn’t lend money directly. To get funded, apply directly to an SBA-approved lender.

The popular "Patriot Express" loan program has been discontinued, but the SBA still backs small business loans up to $350,000 under the 7(a) Small Loan program, and up to $5 million under the 7(a) Standard Loan program.

Typically, there's a 3% funding fee for SBA direct loans, but the SBA waives that funding fee for loans to veteran-owned small businesses from $150,000 to $350,000.

The Department of Veterans Affairs makes every attempt to prioritize veteran and service-disabled veteran-owned small businesses when it comes to contracting opportunities. If you want to do business with the VA, register your business with the VetsFirst Verification Program.

Even if you don't plan to conduct business directly with the VA, the VetsFirst program provides education and training for veteran small business owners. It maintains an extensive library of educational materials.

If you don’t have collateral, excellent personal credit or a proven track record as a borrower, you might also want to approach internet lenders, who may have easier credit criteria. But you’ll probably pay a higher interest rate.

StreetShares is a private lender founded and operated by veterans, focusing on lending to veteran-owned small businesses. They can provide loans directly, open a line of credit, or lend against accounts receivable.

Franchise companies frequently have arrangements with lenders to finance franchise purchases and inventory. If you're buying a franchise, it may be easier to qualify with your franchisors' financing company. But that doesn't mean they have the best terms. It almost always pays to shop around.

These can be useful tools for a 30-day float. You don't have to pay interest if you pay all your new charges by the due date when you use it. You may even rack up points or cash-back rewards. After that, they're pure poison.

Many people have started businesses with capital raised from friends and family. It can even help to show other lenders that your family has ‘skin in the game.’ However, if the business fails, things could get a little uncomfortable at the Thanksgiving dinner table.

along with their investment, they can provide managerial, executive and technical support. They may also be able to introduce you to markets, customers and financing you wouldn’t have been able to access on your own.

This is equity investing, not debt. Venture capital and private equity firms buy partial ownership in your business. Venture capital tends to focus on very early-stage companies. Investors typically look at companies where there is a strong prospect that they will be able to exit their investment after one to three years with at least 10 times their original investment on any single company.

Several venture capital firms put extra emphasis on investing in veteran-owned businesses:

• Moonshots Capital

Moonshots focuses on seed-stage opportunities in veteran-founded companies or companies where a veteran is on the founding team. They are looking for companies with $500,000 in recurring revenue, preferably who have already raised $500,000 or more. They are also looking for experienced management that has already run one or more businesses.

• Veteran Ventures

Veteran Ventures looks for veteran-owned or affiliated businesses with promising technology or an innovative business concept. They also consider existing companies with prospects for rapid growth.

• TFX Capital

TFX Capital is a Veteran-led venture capital firm that looks for opportunities to invest with proven and commercially-tested veterans. Their focus is on early-stage B2B technology and technology-enabled businesses.