Small Business

"Rent-a-Vet Scams" One More Reason to Shut Down Small Business Administration


The Dayton Daily News has a solid investigative piece about how the federal Small Business Administration (SBA) is unwilling or unable to police its own preference programs. Read on:

Federal agencies have awarded tens of millions of dollars in taxpayer-funded contracts to businesses operating in Ohio that claimed to be owned and controlled by military veterans with service-related disabilities, only to conclude the companies lied to the government when they said a disabled veteran was in charge, a Dayton Daily News examination has found.

The businesses were part of the federal Service-Disabled Veteran-Owned Small Business program, which gives small companies owned and operated by America's wounded warriors special preference in obtaining lucrative government contracts.

Government watchdogs say hundreds of millions of dollars in public funds have gone to ineligible companies under the program, which calls upon all federal agencies to award at least 3 percent of the value of their contracts to disabled-vet businesses.

Sometimes the companies getting special treatment have figurehead vets in place. Other times, reports the DDN, the supposed vets are simply scam artists pretending to be wounded warriors to get a leg up on competition. The results?

"We had a lot of businesses that were stealing the valor from those who were in fact service-disabled veterans," said Bob Hesser of VET-Force, a veteran entrepreneur task force in the Washington, D.C., area.

Along with SBA, the Veterans Administration comes in for criticism due to its lackluster (read: basically nonexistent) verification of claims made by favored vendors.

Read the whole thing here.

Reason columnist and Mercatus Center economist Veronique de Rugy has long argued that SBA is an agency in search of a mission. The entrepreneurs it was designed to help are able to get loans via regular credit markets (the ones that can't get loans typically have bad business plans); SBA guarantees put taxpayers on the hook for bad businesses that don't actually generate much in the way of employment to boot.  

Most recently, in a Wall Street Journal debate, de Rugy writes:

According to the Government Accountability Office, the SBA flagship loan program accounts for only a little more than 1% of total small-business loans outstanding. So, for the most part, SBA loans help a fraction of small businesses compete with unsubsidized small firms….

The SBA loan program is best understood as a subsidy to banks. Borrowers apply to an SBA-certified bank. The SBA guarantees 75% to 85% of the value of loans made in the flagship program. The banks then boost their earnings by selling the risk-free portion of the loans on a secondary market. Ironically, it's also the biggest banks that do the most business through the SBA.

Read that here.

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  1. Since most small business set-asides go to SIV’s set up by the major defense contractors, I guess it shouldn’t be a surprise that the vet set asides are bogus, too.

    But frankly, even the LEGIT vet set-asides are a little bogus. The GSA orders a vast amount of product from “vet-owned companies” that are little more than websites set up as SQL catalogs of other companies’ products. So we’re paying a premium to add a middleman to do nothing more than put up a really poorly designed website. Why not just send vets checks directly, if that’s what we want to do, instead of corrupting the procurement process?

  2. Still, I say that if Catherine Bell applies for a loan guarantee to start a pilates studio, we give it to her.

  3. Vets? What about women owned businesses? I have worked for 2 “women” owned businesses just for SBA AND government contract purposes. In both cases the wife of the real owner was listed as the owner.

    1. Something about unforeseeable consequences . . . .

  4. [rips up business plan, walks down hall mumbling]

  5. The entrepreneurs it was designed to help are able to get loans via regular credit markets (the ones that can’t get loans typically have bad business plans);

    The SBA paperwork and bureaucracy is so bad that many candidates for SBA loans just say fuck it, and many, many banks won’t make an SBA-backed loan anyway.

  6. Far be it that if the government starts handing out “free” money under certain conditions that people would be scamming the government to get that money? Say it isn’t so!!!

  7. I would think that price and quality should be the only considerations in who the government contracts with. I have no problem just sending checks to disabled vets.

  8. We are a group of 10,000 VOBs/SDVOSBs. Independent of the SBA and CVE, we have seen a SIGNIFICANT increase in calls from agencies/contractors looking specifically for SDVOSBs either by state, county, city or service/product offering. This is the good news.

    The bad news is we’ve also received a ridiculous amount of calls from companies looking for a service disabled veteran owned business to partner with for the sole purpose of winning a contract. We’ve seen some emails stating that the company looking for an SDVOSB would be willing to give a “referral fee” just for using the SDVOSB’s name on a contract. Could be that some businesses just don’t understand the process; though it seems more and more like blatant fraud. Either way, it seems education and procedures would go a long way in helping cut down on this.

    Sadly, we hear from many community members telling us they just don’t have the time, experience, manpower and especially money to bid on government projects. Especially considering how some bids are filled with pages and pages of government speak (sometimes for small projects) that most small, SDVOSBs don’t understand and will just pass on. We don’t see things getting much better until these things can be addressed for SDVOSBs. In short, it seems government work from the very start is made for businesses that understand the system and have personnel focused specifically on the bid process. Unfortunately this doesn’t describe most SDVOSBs!

  9. Staples has a subsidiary, Diversity Products Solutions, established specifically to meet MBE/veteran-owned purchasing goals.

    The goods are identical to the non-DPS stuff. They cost very slightly more. Since a typical large business buys plenty of paper and toner, it’s an easy way to meet purchasing targets.

    Taking a step back (and speaking as someone with plenty of veterans in my family), I don’t see why an owner with past military service puts a business at a disadvantage compared to non-vet owned, which is the normal argument for affirmative action.

  10. If they employ figureheads to get favor, what’s the big deal? The program still achieves its purpose of getting bucks to disabled veterans, doesn’t it?

  11. The problem is that it is not equal protection under the law. Lets not loose sight of the fact that these businesses get preferential treatment re” govt contracts.

  12. Its bad enough that society has the pay the salaries and benefits of these soldiers, but then we have to get fleeced by them when they retire and want their businesses subsidized as well.

    Talk about an elevated class.

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