Building A Better Lending Model To Serve SMBs Who Served

According to the Small Business Administration, of the 28 million U.S. SMBs, roughly 2.5 million, or 9.1 percent, are owned by veterans of the United States Armed Forces. Those firms, according to the same SBA report, had an annual payroll of $195 billion, receipts of $1.14 trillion. And, because vet-owned firms employ about five people each, they are responsible for creating 12.5 million jobs.

Veterans, by the numbers, make excellent entrepreneurs.

There’s just one small issue. Veterans often find it extremely difficult to secure bank funding, despite the fact that a myriad of programs exist to encourage entrepreneurship among those who have left the military in good standing.

The problem, according toStreetShares CEO Mark Rockefeller  is in underwriting. Even with those programs in place, mainstream lenders have a set of mainstream criteria that they use to establish creditworthiness – and veterans often have difficulty with those specific standards.

But Rockefeller – himself a former service member with nine years in the Air Force behind him – believed there was a missed opportunity in play: An opportunity that merited leaving his job as a finance attorney.

And so with his friend, former Capital One executive and former South African Air Force member Mickey Konson, he founded StreetShares, Inc.

Their first base of operations was Rockefeller’s basement in Reston, Virginia.”

A Different Type Of Platform

Veterans, Rockefeller noted, by nature of their unique shared experience, often have a type of loyalty and camaraderie that is rare to find in other quarters. StreetShares taps into that feeling by allowing vets to apply for loans that are funded via the P2P investment of other vets.

“It’s a bit like if a bank allowed depositors to interact with borrowers, and you organized that interaction around social groups to create additional loyalty to the bank,” Rockefeller said in a 2016 interview.

Today, he describes the situation in starker terms, saying that the bonds of loyalty that bond soldiers together makes them “more creditworthy than non-veterans, because they know that the money behind their loans comes from fellow veterans.”

And that, Rockefeller noted, is not merely affection for his fellow vets talking, but a  credit evaluation tool that keeps spitting out the same information – that StreetShares is tapping into a very specific source of loyalty in their target customer – and leveraging that toward an extremely low delinquency rate.

That rate, he noted, is based on more than mutual soldier loyalty, as StreetShares has other lending requirements. To qualify for funding on the platform, businesses must have at least $100,000 in revenue or have been in business for one year. Those that do qualify can receive three- to 36-month term loans and lines of credit up to $100,000.

Apart from those classic loans, Rockefeller explained, StreetShares also offers receivables financing and invoice factoring for veteran-operated firms with government and commercial contracts.

The platform also offers what it calls “veteran business bonds,” which allow what Rockefeller called “everyday investors” to invest as little as $25 in bonds that are “diversified across our loan portfolio of businesses in every region and in industries across the U.S.”

StreetShare promotes that program as a unique way for consumers to support the troops in the most useful way – by allowing them to them keep contributing and keep serving the public. while they earn 5 percent annually – far better than the average saving account

What’s Next

Between its founding in 2013 and 2016, StreetShares had previously raised $8.3 million in three equity rounds.

It has recently closed its most recent round with $20 million from Rotunda Capital Partners, a private equity firm based in Bethesda, and another $3 million from other investors.

The funds, Rockefeller noted, were an excellent validation of what they’re trying to do for the community of veterans they serve – and a mandate to grow the platform.