Data to drive change: Veteran-owned small businesses


Liz Duda

Open sign with American flag

I loved to hear my father’s stories of The Family Laundry, a small business started by my grandfather. As a young man working for his dad, my father had memorable tales of delivering laundry to Wellesley College’s campus in the 1950s. After being stationed in the US Army in Fort Jackson, he took over The Family Laundry. As the business owner rather than a worker, he told different stories—about the challenges of business ownership and how he addressed them.

So I was interested in the veteran-owned firms chartbook from the Federal Reserve’s 2022 Small Business Credit Survey. The data told their own stories. I looked at business performance, challenges, debt and financing, and demographics, and thought about what firms like my dad’s and grandfather’s face today. I also saw that policymakers, researchers, and service providers—such as bank lenders or insurance companies—could consider this data to design solutions to fix the problems.

The Family Laundry logo
Logo from The Family Laundry in Malden, Massachusetts
Small firms are important to our communities

People care about small businesses, and their challenges to grow and get funding, because they’re so important to the economy. Small firms employ nearly half of private-sector workers and support the economies of local communities. The US Chamber of Commerce points to the many ways small businesses strengthen local communities by:

  • donating to local charities (66%)
  • sponsoring local events (64%)
  • offering discounts to certain community groups such as teachers or veterans (56%)
  • encouraging employees to “shop local” (70%)

Small businesses also drive innovation. For example, a Summerville, South Carolina forklift assembler had an innovative strategy to recruit workers right out of high school. It hired teachers for summer jobs so they could experience the perks of working at the company. The hope was that when the teachers returned to school, they would “talk up” the company’s jobs to their students (see Community Conversations Team Canvasses South Carolina).

Firms in Focus chartbooks

The Fed has surveyed small businesses across the US annually since 2016 through its Small Business Credit Survey. In 2022, about 8,000 firms with employees and 6,000 nonemployers (firms with no employees other than the owner(s)) responded.

Firms in Focus chartbooks compile Small Business Credit Survey results by business or owner traits and by geography. Using this data, I could see how veteran-owned businesses’ experiences accessing credit compared to those of non-veteran-owned businesses.

Veterans have more financing challenges

Small-business ownership is one way for military veterans to leverage skills gained while in the service. Like members of the military, small business owners need leadership, communication, organizational, problem-solving, and technical skills.

But tackling financing needs to start and grow a small business is often a challenge. The survey shows a concerning approval gap to get financing for veteran-owned firms, including that:  

  • About 32% of veteran-owned firms said credit availability caused financial challenges, yet only 25% of firms with no veteran ownership cited this issue.
  • When applying for financing, veteran-owned firms are more likely to say they were denied and less likely to say they were fully approved.
  • Owners from 72% of majority-veteran-owned firms spent their personal savings on the firm, while only 62% of firms with no veteran ownership tapped into the owners’ savings.

In 2018, the Fed published Financing Their Future: Veteran Entrepreneurs and Capital Access. The report cited declining veteran entrepreneurship and showed veteran-owned firms performing worse than non-veteran-owned businesses. Capital access was a common problem then. It’s one that we still see today.

Veterans turning to online lenders

As the chartbook shows, a relatively high number of majority-veteran-owned firms (32%) applied for funding from online lenders (i.e., fintech lenders), and significantly fewer applied at small banks (18%) and community development financial institutions (CDFIs) (1%). This is notable because online-lender applicants reported lower satisfaction with their lenders than bank applicants. “Applicants at CDFIs and small banks are less likely to report challenges with high interest rates or unfavorable payment terms,” explained Lucas Misera, a policy analyst with the Small Business Credit Survey team.

Reflecting on history and insights for the future

My father’s small-business challenge was adapting to an evolving industry that required capital investments and people management. Looking back on it decades later, he summarized, “I returned to my hometown of Malden, Mass., to take over my family’s laundry business where I made the best business decision of my life. I sold it before the home delivery of milk, bread, and laundry went the way of the dinosaur.” He sold off the assets in pieces, which was more profitable than selling the business as a whole. He used that experience to get into Harvard Business School (not bad for a one-time high school dropout). What the 2023 Firms in Focus data show is that there’s still work to do to help more veteran-owned businesses succeed.

For more insights about the challenges small business owners are navigating, check out the suite of Small Business Credit Survey reports.

Written by

  • Liz Duda

    Liz Duda is an examiner in the Supervision, Regulation and Credit department at the Richmond Fed and guest writer for Fed Communities.

    View all posts

More ON Small Business

CDFI innovations in consumer and small business finance

CDFI innovations in consumer and small business finance

Key insights from the 2023 Small Business Credit Survey

Key insights from the 2023 Small Business Credit Survey

A closer look at rural CDFIs

A closer look at rural CDFIs