A new bill was recently proposed to Congress that, if enacted, would allow veterans to use their Post-9/11 GI Bill as collateral to obtain a small business loan.
On the surface, I like the idea. The GI Bill serves a great purpose—to help prepare veterans for life after the military. But not everyone is cut out for college, and not every job requires a degree. In fact, I’ve known many successful entrepreneurs and small business owners who either didn’t have a degree, or who started a business in a field not directly related to their degree (including yours truly; my business has nothing to do with my degree).
That’s why I find this idea intriguing. It’s also not far out of the scope of previous programs. Veterans were offered small business loans in the decade after WWII. Over 200,000 small business loans were granted during that era, and those small businesses were an integral part of the decades of prosperity that followed the war.
What are Current Entrepreneurship Options for Veterans?
There are many programs to help veterans get into entrepreneurship. But most of them only offer training. And that will only get you so far in many businesses that require startup capital.
For example, the VA currently only pays for entrepreneurship training through the Small Business Development Center (SBDC) (more info). But there aren’t many other options through the VA.
There are some grants or loans through the Small Business Administration (more info). Some states and private institutions also offer grants or loans to veterans.
Unfortunately, there is no way to tap into any GI Bill funds for many different types of entrepreneurship training, or for a loan to start, purchase, or expand a business.
Info About the Proposed Bill
The proposed bill has some checks and balances to help veterans get off on the right foot and to prevent fraud. According to Military.com:
Before a veteran could access that funding for loan collateral, the business plan would have to be vetted and approved by an independent board of business experts. The veteran would also have to attend a boots-to-business course at an accredited university.
With that done, the veteran would then apply to access the capital in their G.I. Bill as a no-interest loan to be paid back over 10 years.
I like the checks and balances in place. Handing someone a large loan without training or other approval measures would be a recipe for disaster for many people.
What Are the Long-Term Implications?
I like the idea in general, but Id like to see more details and information about the proposal.
The biggest concern I have is this is a loan, not a grant. So veterans would have to put their education benefit on the line to pay back a loan. In other words, they are trading the opportunity to receive hundreds of thousands of dollars in education benefits so they can take on debt.
- What happens if they default on the loan?
- Do they lose their GI Bill forever?
- Do they get to keep their GI Bill benefits if they repay the loan in full?
Let’s dive even deeper. Small businesses are notoriously risky. According to the Small Business Administration (SBA), approximately half of small businesses fail within the first 5 years. There are many reasons for small businesses failing, most of which fall outside the scope of this article. So what measures are being taken to help veterans succeed beyond the initial training and approval?
- How robust is the training and mentorship program?
- Are there any ongoing training programs or resources?
What I Would Like to See
Overall, I like the idea of supporting small businesses. I’d love to see more details and see the answers to the questions raised above. And I would hope there is some form of ongoing mentoring program or access to resources.
But more than that, I’d like to see this changed to a grant instead of a loan, or possibly a hybrid grant/loan program.
The cost of offering a grant instead of a loan would certainly be much higher than using the GI Bill as collateral for a loan. But it would also better equip veterans for life on the outside, and give them a better shot at success. There would, of course, need to be checks and balances in place to prevent fraud. Otherwise, it would be too tempting for many veterans to take a quick small business course in order to cash in their GI Bill.
But the long-term costs of such a program could actually be less expensive than paying for 36 months of college benefits, which can exceed $175,000 when taking tuition, BAH, book stipends, and other costs into account.
A hybrid grant and loan option could be done for much less than $175,000. For example, a program could be constructed in a manner that would put the veteran through a several month small business or entrepreneurship course, then give them a grant and/or upon completion of the small business program and approval of their written business plan.
There are many ways this could be done. Such as a flat rate grant, or perhaps the business plan could call for x-amount of capital. This could be provided with a portion of the amount as a grant, and the other portion as a loan. Requiring part of the amount to be a loan gives the veteran some skin in the game and incentive to be successful. And giving part of the amount as a grant could both save the government money and help the veteran more easily succeed. And it might just drive a better return on investment for the veteran and the overall economy.
I’d love to hear your thoughts on this topic.
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Jill Henderson says
Details of the Bill signed 21 May 2015 can be found here.
HLD says
Ryan,
To reduce frustration and confusion 3 significant clarifications are needed on your article concerning the SBA grants and loans. I was a District Director of the SBA so I am very familiar with the programs. I am also a 20-year veteran, as well as a current college professor.
#1. The SBA does not have any grants for any type of “For-Profit Business”. This grant concept is a carry over from over 20 years ago and there are no such things – don’t look for one, don’t ask for one – Grants do not exist, sorry folks.
#2. The SBA does not provide ANY loans directly to ANY small business, regardless of demographic. They do provide a guarantee to a traditional bank loan that reduces the risk for the bank on your behalf. This is very similar to how the VA home loan works – same concept. BUT, if you default on the SBA guaranteed loan, the federal government will get their money in the end no matter what.
#3. A minor point but it is worth mentioning; SBDC counseling is free. Veteran’s nor anyone else seeking advice on a small business pays for counseling from an SBDC – the counseling by qualified and well trained small business counselors is “Prepaid” by federal (SBA) and state funds. The SBDC does offer additional classes for a significantly reduced fees and the SBDC is an excellent place for ANY business person to find good quality information and training.
In Closing:
I believe this proposal for using the currently funded GI Bill is a good idea. I have some additional questions but on the surface it is an excellent initiative. I have counseled many veterans or soon to be veterans on small business creation and this will give them a hand-up, not a hand-out. Ideally, the program would allow both uses so a veteran could get valuable education from a local community college on entrepreneurship, accounting, and other valuable educational areas. They don’t necessarily have to earn a degree; but get a few classes under their belt, maybe earn a certificate in entrepreneurship would set them up for success.
I hope this helps, feel free to use my information as you would like to educate our fellow veterans.
HLD, LT, SC, USN (Ret)
Heike says
Hi
I was wondering if the new program only can be used in the US or also overseas? My husband is Veteran and currently in school but we are moving out of the Country end of the year. I know you can not get a VA home loan overseas wondering why not because home loan is home loan does not matter where the Veteran is living in my opinion this should be changed. I mean so many Veteran living not in the US after there duty staying in Germany Europe where ever it is there choice so they should be able to get loans out of states too
Ryan Guina says
Heike, This program is currently being proposed, but hasn’t yet been approved. We won’t know more details unless it is approved. If it is, we will update this article with more details. The GI Bill can be used overseas. Here is more information.