Default Rate High for Program to Help Veterans in Business
An $800 million federal loan program intended to help veterans start businesses has a default rate nearly 75 percent higher than other small-business loan programs, according to a News21 analysis.
Patriot Express, launched in mid-2007 by the Small Business Administration, offers veterans loans of up to $500,000, and reviews applications within 36 hours — days faster than standard business loans. In the case of default, SBA reimburses banks for up to 85 percent of the loan.
“Patriot Express was done because there were a lot of veterans coming back,” said Robert Blaney, SBA district director in Arizona and member of a Patriot Express advisory board in 2006 as the program was being developed. “If somebody has been shot at in anger, it’s good that they get an extra benefit.”
From its launch through September 2012, Patriot Express administered 9,265 loans at an average of $86,000.
One in nine Patriot Express loans has failed since 2008, costing taxpayers $48 million in support to banks, SBA records show. The default rate, 7.8 percent of all loan dollars, exceeds the 4.5 percent loss rate of other SBA-backed loans.
Mark Proden owns the Bodhichitta Winery in Salem, Ore. The Air Force veteran left active service in 2007 and obtained a $35,000 Patriot Express loan in 2010 to start a business.
“For me, I enjoy the creativity and the flexibility to create your own world,” he said. During 11 years, he served as a pilot and an engineer. “I worked as a program manager in the military, though it’s always different when you’re managing your own money compared to somebody else’s.”
Entrepreneurship is common among veterans, according to the SBA: A March 2011 report showed that nearly 16 percent of veterans are self-employed, compared to just 6 percent of the overall population.
Patriot Express represents a fraction of SBA loans. From October 2009 through September 2012, SBA backed 179,335 loans; Patriot Express totaled 7,056 of them, or slightly less than 4 percent, according to a News21 review. Patriot Express accounted for 13 percent of all defaulted SBA loans originating in that time.
The key differences between Patriot Express and other programs are its 36-hour review and its loan amounts: Other express programs by SBA offer only up to 50 percent backing on a maximum loan of $350,000. Across the country, Patriot Express lenders with default rates at or higher than 25 percent have accounted for a quarter of SBA support. Yet officials say that bad lenders such as those do not have much impact on the program.
“If a bank is not performing well, we’re going to pull the relationship,” said Stephen Hart, an SBA senior area manager in Arizona. “It’s almost like a credit score — it’s too valuable of a relationship for the bank to mess it up.”