RSSBy Brigitte Yuille
- Bankrate.com
http://www.bankrate.com/brm/news/debt/20070525_Guard_Reserve_bankruptcy_a1.asp?prodtype=cc
Most of the casualties from the Iraq war are obvious: flag-draped coffins, prosthetic limbs and traumatized warriors.
For many National Guard members and reservists serving lengthy and repeated deployments in the Middle East, there are other victims — their businesses. All too often, when Johnny comes marching home, his business is bankrupt.
For the self-employed, a year in Iraq can mean the death of his or her livelihood. Men or women operating lawn-care companies or pool-cleaning services might return home to find that most of their customers have deserted them and they must start anew.
A second and third deployment might well eliminate whatever clientele they have left.
A 2003 Department of Defense survey cited in a Congressional Budget Office report found “33 percent of self-employed reservists who had not been activated in the past two years responded that a three-month mobilization or deployment would cause a very serious problem to their business.
“Twenty-two percent who had recently been activated said that the damage actually done to their business was a serious or very serious problem.”
And since that 2003 survey, deployments have been extended and repeated.
“I have no doubt that there have been bankruptcies,” says Dan Cavanaugh, manager at the University of West Florida Small Business Development Center. Cavanaugh has worked as a certified business analyst for military veterans.
“One of the things we knew was a lot of self-employed reservists went out of business during the first Gulf War,” says Rick Weidman, executive director for Policy and Government Affairs for Vietnam Veterans of America. “They were called up longer than anticipated. So they lost their business. We wanted to do something to assist them.”
Members of the military who are employed by a company can go off to war knowing their jobs are safe.
The Uniformed Services Employment and Reemployment Rights Act of 1994 provides some stability and safeguards for these employed soldiers. The law promises them prompt re-employment upon completion of service and bans discrimination based on military obligations.
Not all reservists are as fortunate
Among selected reservists, a category that comprises most of the total reserves, 5 percent are self-employed, says the Employer Support of the Guard and Reserve, a federal organization that promotes communication between reservists and their civilian employers.
These veterans often struggle to keep their businesses intact while they are away.
“When these reservists are called up for 18 or 24 months, their customers go away and they usually have to start their businesses all over again,” says Ted Daywalt, president of Vetjobs, a job Web site for the military.
“Since they are the core of that small business, the business generally goes down,” he says.
Available military loan programs offer some assistance once a business goes under, but don’t provide much help to keep it from reaching that state.
Sgt. Dale Brannon of the Florida Air National Guard’s 202nd Red Horse Squadron in Northern Florida owned a lawn maintenance and landscaping business that once brought in $4,000 per month. It collapsed after his first deployment. Brannon had to get a loan to start his business all over again.
Then he was sent to Iraq once again.
“It has not been easy but with the good Lord’s help we have managed,” he says. “My deployment is not as long this time, but nonetheless I have had to make changes in order to serve my country and hopefully continue in self-employed status when I return home.”
Brannon was first deployed to Iraq in February 2003 for 14 months. His sister tried to run the business in his absence with the assistance of two employees she hired but health problems and debt forced her into bankruptcy.
The bankruptcy took away equipment Brannon and his sister had shared. Upon his return he needed replacements, including a new trailer, mower, Weed Eater, edger, blower and a commercial-size pressure washer.
“I was very disappointed when I went to my local bank that refused me a small business loan to get back on my feet,” says Brannon. “As a reservist guardsman, I was off the payroll shortly after my deployment was up.
“There are no programs in place that I could find to help self-employed guardsmen recover for their losses during deployment from the military side. I was refused help because I was not able to show income at the present time.”
He was considered unemployed.
“They needed tax returns that showed he was self-employed for two straight years. They would not consider the one year he was overseas in Iraq,” says his wife, Lynn.
The couple, who have six children, eventually secured a $15,000 loan from MBNA, but at 15 percent interest.
Dale Brannon decided to switch out of the Army National Guard because of the long deployments and transferred to the Air National Guard.
“He transferred over a year ago and found out he would have to be deployed,” Lynn Brannon says.
This time the couple prepared by hiring someone two weeks before Brannon left.
“The lawn maintenance pays for itself. We’re not making extra money. My husband can make two to three times more,” says Lynn Brannon, who billed the customers and handled work issues.
The couple finally decided to sell the business to the new employee. They are still paying off the MBNA loan, but were able to get a lower rate of 6 percent now that Brannon is deployed.
Small businesses suffer, too
It isn’t only self-employed military personnel who suffer.
In January, Daywalt told a U.S. Senate panel on Small Business and Entrepreneurship that more than 60 percent of the participants in the Guard and Reserve come from rural areas.
“When they are called to active duty and leave their job, it is hard for employers to find replacements, especially if it is a critical position or a management/executive position,” he testified.
The Congressional Budget Office, or CBO, discovered that some businesses experience slowdowns in production, lost sales or additional expenses as they make up for a reservist’s absence, according to the May 2005 report, “The Effects of Reserve Call-Ups on Civilian Employers.”
Some businesses may find they are unable to operate for long periods without their reservists and may experience financial losses or bankruptcies.
Multiple and extended deployments
The average time a guardsman or reservist spends overseas for a deployment depends on the service branch, says Lt. Col. Ellen Krenke, a Department of Defense spokeswoman.
“The Army National Guard and Army Reserve spend between 18 and 21 months deployed, while the Air National Guard and Air Force Reserve may spend 60 to 90 days,” says Krenke.
The Department of Defense use of National Guardsmen and the Reserve expanded in the early 1990s during the Gulf War. A decade later, the terrorist attacks of Sept. 11 resulted in an increase in soldiers’ deployments to 18 months. Previously, the soldiers served no more than six months overseas at any time. The invasion of Iraq further increased the time deployed to 24 months.
“The National Guard or Reserve member could be mobilized for a 24-month tour in Iraq or Afghanistan, be demobilized and allowed to return to a civilian working life, only to be mobilized a second time for as much as an additional 24 months for a total of 48 months in any 60-month period,” says Daywalt.
Guardsmen and reservists have also been called up in the United States to assist during hurricane seasons, floods, fires and in border operations.
Not much help available
Some financial help is available after a business is destroyed, but very little assistance is provided to keep it from happening in the first place.
William D. Elmore, associate administrator for Veterans Business Development, acknowledged that the disaster loan is “constrained by its very design” in his statements before the Senate Small Business and Entrepreneurship panel.
“The Military Reservist Economic Injury Disaster Loan Program is a disaster portfolio. It’s not a business loan per se,” says Elmore. “You have to demonstrate the damage occurred and you can use the proceeds for operating expense. You can’t apply it like you have a broader business loan.”
The CBO identified some limitations and monetary delays for loan assistance. It suggests the eligibility is restricted to businesses that can’t get a good amount of credit anywhere else. A business can’t apply for a loan until the reservist is ordered to active duty, and some businesses may have difficulty applying for the loan until after the reservist is deactivated.
“Because of the way the programs are designed, all they’re doing is guaranteeing a small portion of the loan and you still have to go to the local bank and meet their qualifications,” says Daywalt.
Federal lawmakers are looking into tax credits to alleviate the burden for self-employed military business owners. In the meantime, soldiers are urged to develop a comprehensive business plan.
– Posted: May 25, 2007