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Witness Testimony of Mr. Joseph C. Sharpe Jr., Economic Commission, Deputy Director, American Legion

The American Legion appreciates this opportunity to comment on the current state of veteran entrepreneurship and self employment, to include obstacles faced by aspiring entrepreneurs, programs being relied upon by entrepreneurs and to review current programs funded by the federal government that assist veterans.

The American Legion views small business as the backbone of the American economy.  It is the mobilizing force behind America’s past economic growth and will continue to be the major factor as we move well into the 21st Century.  Presently, more than nine out of every ten businesses are small firms, which produce approximately half of the Gross National Product.  Currently, over one-half of the nation’s work force is employed by small business, with the average company employing approximately 11 persons.

America has also benefited immeasurably from the service of its 24 million living veterans, who made great sacrifices in the defense of freedom, in the preservation of democracy, and in the protection of the free enterprise system.  According to the Small Business Administration’s (SBA) Office of Veterans Business Development in Washington, DC, the number of small-business-owning veterans has increased to more than 4 million nationwide with more than 235,000 being service-connected disabled veteran owned.  They range from home-based sole proprietorships to high–tech global corporations.

In addition, due to the experience veterans gain in the military, the success rate of veteran owned businesses is higher than other non-veteran owned businesses.  The current War on Terror has had a devastating impact on the military and has contributed to exacerbating this country’s veteran unemployment problem, especially within the National Guard and Reserve components of our military.  The present unemployment rate for recently discharged veterans is double the national average.  Unfortunately, many of the thousands of service members who are currently leaving the service are from the combat arms and non-skilled professions that are not readily transferable to the civilian labor market.

One way of combating unemployment is through the creation of new jobs.  Small business creates by some estimates 60 percent to 80 percent of net new jobs, therefore providing a central element for strong economic growth.  Government should assist in the creation of new jobs by encouraging qualified entrepreneurs to start and expand their small businesses.  No group is better qualified or deserving of this type of assistance than the veterans of this nation.

Increasingly, the growth and stability of this nation’s economy is dependent on the long-term success of the small business networks across the country.  However, during a time of war there is much to be accomplished.  Ironically, for too many years, the very men and women who served in uniform and who stood ready to fight, and if necessary to die, in order to protect and preserve our free enterprise system, were completely ignored by the Federal agency responsible for meeting their small business needs.  Therefore, The American Legion welcomes the recently passed amendment 216 that seeks to increase the SBA’s budget by $78 million, to $671 million and Veterans Outreach Program by $1.5 million.  Funding levels have a crucial impact on the scope and quality of programs and services delivered by SBA to veteran-entrepreneurs, effecting possible success or failure of some veteran owned businesses.

Reaffirm Support of the Small Business Administration’s Office of Veterans’ Business Development:

The American Legion supports increased funding of the Small Business Administration’s Office of Veterans’ Business Development in its initiatives to provide enhanced outreach and specific community based assistance to veterans and self employed members of the Reserves and National Guard.  The American Legion also supports legislation that would permit the Office of Veterans’ Business Development to enter into contracts, grants, and cooperative agreements to further its outreach goals and develop a nationwide community-based service delivery system specifically for veterans and members of reserve components of the United States military.  For FY 2008 estimated funding for this office would be estimated to be $5 million, in FY 2009 $10 million, and FY 2010 15 million to enable it to implement a nationwide community-based assistance program to veterans and self employed members of the Reserves and National Guard.

The National Veterans Business Development Corporation:

Congress enacted the Veterans Entrepreneurship and Small Business Development Act of 1999 (P.L. 106-50) to assist veteran and service-connected disabled veteran owned businesses by creating the National Veterans Business Development Corporation and with the assistance of the SBA.  The Veterans Corporation (TVC) created a Veterans Entrepreneurial Training (VET) Program to promote and foster successful veteran entrepreneurship within the veteran business community, but this program no longer operates.  Currently, the organization’s main efforts have been to provide distance-learning education in how to start and expand existing businesses, to include training in finance, accounting and contracting.  The Veterans Corporation indicates it has established a foundation for a 10-year plan to reach all 4-5 million veterans interested in entrepreneurship.  Its latest vision is to assist Guard/Reserve and transitioning members of the Armed Forces and their families with the establishment of their own businesses.  The American Legion is working with the Veterans Corporation to ensure the best method or methods of assisting these deserving veterans.  TVC has in the past stressed creating online education programs hosted by other third party organizations to assist veterans with obtaining basic literacy skills.  This current plan would create an online platform to match veterans with entrepreneurial education and career opportunities and to provide grants to Small Business Development Centers around the country and other business development organizations to specifically assist veterans.

On Line Development Programs

The current staff of the Veterans Corporation has focused on employing the use of the worldwide web to reach veterans.  According to TVC representatives a combination of services, online and distance learning will serve the largest number of veterans needing entrepreneurial services in all fifty states.  TVC expects to launch a Virtual Veterans Business Center in cooperation with SBA’s Service Corps of Retired Executives (SCORE) to provide a nation-wide, market specific, person-to-person counseling service to veterans not only in America, but deployed overseas as well.

TVC has also launched a Virtual Business Incubator with the specific aim of helping National Guard and Reservists who own businesses and are currently deployed in Afghanistan, Iraq or any place else in the world.  “Deploy Proof Your Business” is another online program specifically designed to assist members of the National Guard and Reserve components in protecting their businesses prior to deployment.

The American Legion fully supports these progressive programs aimed at the technologically astute veteran.

Small Business Development Centers

The Small Business Development Centers (SBDC) are already funded almost $90 million a year by SBA and our understanding is their written agreements with SBA provide direction for their specific creation or operation of veteran, service-connected disabled veteran and reserve component member entrepreneurial assistance.  Why does the SBDC need an additional, third party organization such as the Veterans Corporation to provide them additional funds from Congress to perform what they are already funded to deliver by SBA?  If SBDCs require additional resources to enhance, improve, develop or deliver specialized assistance to veterans and reservists that funding process should be through their normal funding channel of the SBA.  Additionally, should Congress choose to provide additional resources to SBA to enhance SBDC programs specifically for veterans and reserve component service members, the Office of Veterans Business Development should be part of the program design, selection and oversight process to ensure that the expertise of veterans, including the policy and program delivery and reporting requirements, are designed and developed by the SBA office whose responsibility by law is veterans’ business development.

Public Law 106-50

The American Legion acknowledges that the requirements of Public Law 106-50 as originally envisioned are not being met by TVC at the present time due to the scope of the mission and funding requirements.  The American Legion agrees with the view that forcing TVC to duplicate or replicate preexisting services such as those provided by the Small Business Development Centers (SBDC), Procurement Technical Assistance Centers and Department of Labor One Stop Centers does not prudently use taxpayer funds or the limited dollars given to TVC.

Therefore, The American Legion recommends that the resource-training centers (St. Louis, MO; Flint, MI; and Boston, MA) that TVC is currently providing funding for be given to the jurisdiction of the SBA veteran’s development office.

The SBA’s veterans development office is presently funding five such centers around the country and should be given the additional three.  In addition, the SBA office should take on theresponsibility of partnering with military and Veterans Affairs hospitals, Transition Assistance Programs (TAP), State Departments of Veterans Affairs, Procurement Technical Assistance Centers, Military Family Support Centers, and Veterans Service Organizations to provide employment and entrepreneurship programs along with the addition of funding and necessary senior staff to oversee the implementation and development of such a program.  TVC would operate more effectively acting as a liaison with existing associations of small business owners and, by working with SBA programs, ensure the involvement of private and successful military alumni from the business community to help support SBA’s successful (re) integration ofveteran and reserve component entrepreneurs into the private and public American marketplace.

SBA Special Veterans Small Business Loan Program

Many veterans who want to become entrepreneurs either do not qualify for the direct or guaranteed loan through the SBA or do not apply for such a loan because of the red tape involved in obtaining an SBA loan.  In 1973, VA’s small business lending authority was rescinded by Congress for lack of use and Congress passed legislation in the early 1980s that amended Chapter 37 of Title 38, United States Code, to establish a pilot Veterans’ Small Business Loan Program that was to be administered by the Department of Veterans Affairs (VA).  The VA’s Small Business Loan Program was never funded; however, the SBA did implement a direct Vietnam-Era Veteran and special disability loan program that was delivered to veterans and disabled veterans until 1995.  P.L. 106-50 required GAO to examine if VA should create a small business loan program for veterans, and GAO determined in 2000 that VA should not create a business loan for veterans but that perhaps SBA should with VA involvement.  With the current number of active duty service members leaving military service SBA research finds that 22.1% of veterans are purchasing, starting, or considering a start-up or acquisitions of a business.  Access to capital is the number one issue of concern for these veterans followed closely by the lack of knowledge of or access to veteran’s business development programs.  These findings lead us to the recommendation that SBA:

Create a Special Small Business Administration (SSBA) 7a Vet Express Loan Program targeted to and aggressively marketed to veteran and reserve component service members:

This loan would:

  • Provide for maximum loan amount of $750,000
  • Identify means to reduce fees
  • Provide full 75%-85% guaranty
  • SBA provide counseling, training mentoring/Technical Assistance as required or requested
  • Priority Loan processing by Lenders and SBA
  • Add Sec 7, 15 USC 636 (if called provisions) for reserve component members

In addition, a new program would also assist Reserve and National Guard entrepreneurs who are mobilized for active duty service by cushioning the impact of activation on their business.  A report (to the Committees on Armed Services of the Senate and the House of Representatives) on the effects of activation in support of Operations Desert Shield and Desert Storm on members of the National Guard and Reserves who were self employed or owners of smallbusinesses indicated that a sizable percentage of activated reservists may be expected to experience economic losses and that an ever greater percentage actually experienced losses during the Persian Gulf Conflict.  Another report’s findings, the May 2004 status of forces survey of reserve component members tabulations of responses (Defense manpower data center), included:

  • The primary consequence of a reservist being activated was lost business.
  • Replacement was only partially effective.  When the reservist was replaced, the company incurred additional costs associated with its search, hiring, and training.  But even companies that were able to replace the reservist experienced a loss of business from the activation.
  • For many small businesses, loss of a key employee to active duty is virtually a catastrophic event.  This was true whether the employee was a skilled professional or an experienced blue-collar worker.

Presently, SBA offers a program billed as Military Reservist Economic Impact Disaster Loans.  For companies that meet certain eligibility criteria, these loans help offset the economic consequences of the loss of their reservist personnel.  To qualify, a company must be able to show that the activated reservist is critical to the success of the company.  The extent of losses must be documented with financial data and the company must provide certain supporting information.

Reservists Economic Injury Disaster Loan

Enhance the SBA Military Reservists Economic Injury Disaster Loan (MREIDL) Program specifically for reserve component members who are entrepreneurs/small business owners:

  • Offer MREIDL as a pre-mobilization and post-mobilization loan (now available only after mobilization orders are received).
  • SBA provides mandatory Technical Assistance through existing SBA providers as part of loan application package prior to, during and following return from mobilization.
  • Ensure availability of additional credit or capital to small businesses owned by activated and de-activated reserve component members, based on pre-mobilization profitability of business with approved plans.
  • SBA provide prioritized loan application, approval and disbursement processes.
  • Explore equity/guarantee/fee/insurance subsidy with DOD and other partners.
  • Deferral of repayment of direct loans until one year after release from active duty.

SBA would administer the new loan due to its expertise, experienced staff, and business loan guarantee program administrative infrastructure.  VA and DOD could be part of this program.  They have the ability to provide facilities for entrepreneurial training; BRAC bases could be used for small business incubators; VA and DOD could provide lists of small business concerns owned by veterans and reservists; and DOD could provide prioritized contracting opportunities to service-disabled veteran, veteran and reservist owned small businesses focused on producing the goods and services that are procured by the U.S. government necessary to fight and win the Long War.

The American Legion believes that programs listed above are necessary in order to develop and retain the critical skills contained in reserve component service members, especially those service members who have been or will be activated for the Long War, and thereby help to retain and recruit reserve components service members with the professional skills which are critical to the reserve missions as part of the Total Force.

The American Legion seeks and supports legislation that would reauthorize and fund a SBA Small Business Loan Program specifically for service-disabled and reservist small business owners and prospective entrepreneurs.

In Conclusion

The American Legion’s National Economics Commission mission is to take actions that affect the economic well being of veterans, including issues relating to veterans’ employment, home loans, vocational rehabilitation, homelessness and small business.  The American Legion realizes that organizations, like the National Business Development Corporation, were created through P.L. 106-50 to provide America’s veterans with superior entrepreneurial training and business resources that allows them to start or grow a business; and in turn, contribute to the economic well being of the nation.  However, The American Legion would like to reiterate that TVC has not fulfilled the mandates of P.L. 106-50 (creating new resources centers, adequately funding the three that they have and creating a board to oversee licensing and certification issues) and is actively moving away from those mandates of P.L. 106-50 by focusing its efforts and funding on on-line entrepreneurial programs that they believe would maximize their available resources and reach more returning veterans.  Therefore, The American Legion believes the Small Business Administration’s office of Veterans’ Business Development should be the lead agency to ensure that veterans returning from Iraq and Afghanistan are provided with Entrepreneurial Development Assistance.

Comprehensive training should be handled by the SBA and augmented by TVC’s on-line training.  Resource Training Centers should include DOD and VA faculties.  Currently, many military families are suffering financial hardship while their loved ones are recuperating in military hospitals around the country.  Many spouses leave their jobs to be with that disabled service member only to watch their finances deteriorate.  Seamless transition in many cases is just a wishful thought; however, if business development training was offered to military members, a small home based business that is flexible could be the answer in guaranteeing a constant source of revenue for the family, in turn making them less dependent on the Federal government.

The American Legion strongly supports the mandates of P.L. 106-50 that were designed to assist all veterans wishing to start, expand or protect their business.  If there is a true desire to assist veterans returning from Iraq and Afghanistan in developing small businesses we must work together to enforce the mandates of P.L. 106-50.

Thank you, Mr. Chairman, for allowing The American Legion to provide written comments on this very important issue.