Standing on a factory floor in Kabul, Afghanistan, in 2009, something just didn’t sit right with Matthew “Griff” Griffin.

The former Army Ranger, who completed three tours in Afghanistan and one in Iraq, was standing among more than 300 Afghans making 1,000 pairs of boots a day for the Afghan National Army. And Griffin couldn’t help but wonder what would happen to the Afghan workers when the war ended.

“‘Oh,’” Griffin, in an interview with The Daily Signal, recalled the factory manager and former Marine captain, telling him. “‘All these people are going to be out of work.’ And it was a known fact. Period. It was a known fact.”

In that moment, a light bulb went off in Griffin’s head. He calls it his “Snuggie moment”—the instance where the Snuggie’s creator cut a hole in a blanket and thought, “Hey, this would be a really good idea”—except Griffin’s light bulb didn’t shine a light on a garment.

Instead, standing there in one of Afghanistan’s boot factories, he pictured the sole of a combat boot with a flip-flop thong punched through it.

It’s an odd juxtaposition: laced-up combat boots worn traditionally by soldiers paired with the slip-on flip-flops donned by surfer dudes. But for Griffin, it made sense.

The Army veteran left the factory, drove to his hotel and registered a domain name. Combat Flip Flops was born.

The small business “makes cool stuff in dangerous places,” with the overarching mission of boosting the economies of conflict areas. Now, Combat Flip Flops manufactures flip-flops in Bogota, Columbia, sarongs and shemaghs in Afghanistan, jewelry in Laos and t-shirts in the United States.

“I started a business to make stuff in danger areas and conflict zones in order to create that sustainable, long-lasting factor in a community through something they can manage on their own without us being there,” Griffin said.

Being in the business of making cool stuff in dangerous places has been a draw for Combat Flip Flops’ customers. But, it’s made securing small business loans “impossible,” Griffin said, because the locations where they manufacture are uninsurable. Without insurance, banks wouldn’t provide them with loans, so Combat Flip Flops operated on a strictly cash basis.

“Simply because we’re a new business, a small business that’s owner-operated, with under three years of experience and very minimal credit history because of the countries we operate [in], nobody will lend us money,” Griffin said. “As much as people would like to say they support our mission—and even the banks that filled out our credit card loan, they say, ‘Hey, we would love to help you guys, but you guys can’t be insured, so we can’t do it.’”

So Griffin and his Ranger buddy-turned-business partner, Donald Lee, turned to a another veteran-owned business, StreetShares, for assistance.

“We have a line of, ‘Don’t take no from somebody who can’t say yes,’ and it’s a matter of, you’re going to hit some of the no’s in small business, and you just have to figure out a way around it until somebody says yes,” Griffin said. “And that yes came from StreetShares.”

Reproducing the “George Bailey” Days of Banking

Tucked away in the corner of a business complex outside Washington, D.C., sits an up-and-coming business aimed at helping the “next greatest generation.”

StreetShares, founded in 2013, helps connect veteran-owned businesses with investors through an online marketplace. The borrowers make their unedited, raw pitches directly to potential investors, who then bid in an online auction to fund parts of the loan. The investor with the lowest interest rate is the “winner.”

“StreetShares in essence reproduces the George Bailey days of banking,” Chief Executive Officer Mark Rockefeller said in an interview with The Daily Signal. “But we do it using technology, because what’s the great weapon that we have that our grandparents didn’t? The Internet.”

“StreetShares in essence reproduces the George Bailey days of banking. But, we do it using technology,” said Mark Rockefeller of @StreetShares.

The company’s expansive office sits in what used to be the old storage and server rooms for the Maryland and Virginia Milk Producers Cooperative. Now, the office is home to a dozen-member team—and a bulldog named Emmitt—working to fill a void left by the decreasing number of small, community banks.

“Back in ‘45, our grandparents, they could walk into a local bank and get a loan,” Rockefeller said. “My generation of veterans, we can’t because there’s fewer banks. They’re too big, and there’s zero opportunity for them to take into consideration who we are.”

StreetShares’ seeds were first planted in the winter of 2013.

Rockefeller, a U.S. Air Force veteran, and co-founder Mickey Konson, a South African Air Force veteran, met through a mutual friend at their church, and they both had the same idea.

But each lacked some of the skills needed to pull the trigger.

That February, the duo met over “stale waffles and cold coffee” at a Bob Evans in Oakton, Va., to swap ideas about how to bridge the gap between the veteran community and alternative funding sources.

Rockefeller has a securities law background and knowledge of finance after working at a law firm, and Konson has a banking background and once ran Capital One’s consumer retail bank business.

After that first meeting, the pair found they were perfect complements.

“On the way back [from Bob Evans], we each called our respective wives independently of each other and said, ‘Honey, I think I’ve found the partner I needed for this,’” Rockefeller recalled.

Rockefeller had already tapped co-founder Ben Shiflet to serve as chief technology officer, and the idea began to take shape in a matter of months.

By the summer of 2013, Rockefeller and Konson decided to leave their full-time jobs to work on StreetShares in Rockefeller’s basement.

Mark Rockefeller, StreetShares' chief executive officer, in Baghdad. (Photo: StreetShares)

Mark Rockefeller, StreetShares’ chief executive officer, in Baghdad. (Photo: StreetShares)

The Cost of Regulation

The end of World War II brought a wave of veterans back to the United States, and with that, a rush of new businesses. According to the Institute for Veterans and Military Families, 49 percent of returning World War II veterans went on to own or operate a business.

Many of the banks in existence then were small and community oriented, and by the mid-1970s, there were more than 13,500 commercial banks in existence.

However, a shift occurred in the mid-1990s, when the number of small banks began to decline and the number of medium and large banks increased.

“The increasing costs of regulation—the long-term trend has been a higher regulatory burden—disproportionately falls on small banks,” said @norbertjmichel.

“The increasing costs of regulation—the long-term trend has been a higher regulatory burden—disproportionately falls on small banks,” Norbert Michel, a research fellow in financial regulations at The Heritage Foundation, told The Daily Signal. “You can definitely point to that as a reason for the disappearance of small banks.”

The Mercatus Center at George Mason University found that the number of small banks fell 27 percent from 2000 to 2014. The number of small banks at the beginning of the new millenium totaled 8,263, but by the end of 2014, that number fell to 5,961.

By contrast, big banks have grown 32 percent from 76 in 2000 to 101 in 2014 and control 46 percent of U.S. banking assets.

And there hasn’t only been a decline in the number of smaller, community banks.

Today, just 25 percent of veterans returning from the wars in Iraq and Afghanistan are interested in starting a small business. Among all business owners, veterans represented roughly 9 percent of the population in 2012, down from 10.7 percent in 2008, according to the Small Business Administration.

Peter Somerville, director of investor relations for StreetShares, said the decline in small banks has made it more difficult for veterans to secure financing for new business ventures, especially because traditional banks rely on a set of “vital signs” such as credit score, income and revenue to determine if someone would be a good borrower.

But, such a formula doesn’t take into account the skills that many veterans acquired through their service and training.

“A lot of times what makes them a compelling person—someone who is going to be a successful business owner and therefore a great person to lend to—are things that you can’t capture with those numbers,” Somerville, a former Marine, said. “We talk about how these veterans of the past 10 years, they end up in Afghanistan in this little town, and they’re working as the mayor and the police chief and the chamber of commerce president, and all those different roles.”

“That dedication, that doesn’t show up on your credit score,” he continued, “but it’s that experience that gives you the mindset for success.”

For Griffin of Combat Flip Flops, securing a small business loan was “impossible” despite his long list of accomplishments that make him a trusty borrower: West Point graduate, Special Operations veteran, successful sales background and employment history, former vice president of a defense contracting firm.

Through StreetShares, though, Combat Flip Flops secured a $30,000 loan on a three-year term with a 23.3 percent interest rate last year. Within a week of applying, they received their funding.

“Instead of wasting weeks filling out paperwork or months filling out government grant paperwork in order to do this, it was 20 minutes on the computer, waiting for the cash to hit the bank, and then it was gone,” Griffin said.

Peter Somerville, StreetShares' director of investor relations, adds a pin to a map of the United States that shows where a new borrower is located. (Photo: Melissa Quinn)

Peter Somerville, StreetShares’ director of investor relations, adds a pin to a map of the United States that shows where a new borrower is located. (Photo: Melissa Quinn)

‘Affinity-Based’ Lending

Different from a traditional bank, StreetShares borrowers pitch their businesses directly to investors and watch investors bid for parts of the loan in what the company calls a cross between ABC’s “Shark Tank” and eBay.

Allowing the businesses to openly pitch created a culture of “affinity-based lending,” Rockefeller said.

“What we’re doing is we’re taking the bonds of human trust that exist between veterans, and we’re monetizing that for the benefit of the veteran,” he said. “That’s the magic here. But, that only happens if you have a transparent system where the investor knows who the borrower is.”

In many cases, Rockefeller said investors—who, in some cases, themselves are veterans—will offer lower interest rate because they know the borrower is a veteran.

“When they lend to each other, you can decrease the cost of lending,” he said. “If you create a platform where people who trust each other can lend to each other, you can beat the competition just on the price point.”

Not only does StreetShares’ “affinity-based lending” separate themselves from traditional banks, but so does the company’s decision to co-invest in 5 percent of each borrower’s loan.

“If you think about what got us into trouble in the financial crisis, it was organizations originating loans, mostly mortgages, and then originating bad loans, risky loans, and passing that off to somebody else,” Rockefeller said. “Philosophically, we think that the originator of the loan should have skin in the game, that way your interests are perfectly aligned with your investors.”

Capitalizing on the bonds between veterans also played a role in Griffin’s decision to seek funding from StreetShares—from one veteran-owned company to another.

“Veterans talk to veterans in a very specific and deliberate way in which civilians don’t understand,” he said. “We’re very purpose-driven and mission-driven, and it’s mainly about the mission and the requirement, and not the personalities involved.”

“As a veteran-owned company, when we speak to them in that way, they understand it and they’re able to communicate that to their network of investors and say, ‘We know these guys. We trust these guys. We know their qualifications, and we will vouch for them,’” he continued. “It’s what they essentially did for us, which is fantastic.”

StreetShares’ business model is working.

“We have a very talented generation of veterans for whom the existing financial system doesn’t fit,” said Mark Rockefeller of @StreetShares.

From February to March, the number of loans they offered doubled. The company currently has 200 investors committed, with 33 coming on board in March.

Of StreetShares’ 1,500 members, two-thirds are veteran-owned companies, and last month, they secured more than $200 million in funding for loans from Direct Lending Investments, Community Investment Management and Eagle Bank Corp.

“We have a very talented generation of veterans for whom the existing financial system doesn’t fit. It’s not that the existing financial system is bad or malintentioned, it’s just a poor fit for the modern world, and we have the ability to use technology to create some solution,” Rockefeller said. “The potential for Americans to invest in veterans beyond just lip service, beyond a donation to a nonprofit organization, but to actually invest in a meaningful way…that’s really the way the entire country moves forward.”