students-debts

How Millennial Entrepreneurs Can Balance a Business with Student Debt

One of the greatest facets of the American Dream is starting one’s own business.  We’ve all heard inspiring stories of the mom and pop store turned international corporation.

And the entrepreneurial spirit has fed off that to be alive and well among Millennials, who are now in their twenties and thirties.

However, many people from generations past attended college on the G.I. bill or were asked to pay much less in tuition bills than Millennials were.

Starting a business is a bit harder when one factors in money s/he owes on student loans.  It can really scare a thoughtful person who has the fiscal sense you must have to start a business.

However, a difficult balancing act is at least possible through a variety of strategies, and we’ll discuss these below.

Change the Way you Pay off Your Loan

Entrepreneurs are nothing if not researchers.  They find out what programs and methods and opportunities may be available to them.  There’s never a circumstance when this is more necessary than when dealing with your student loan if you intend to start a small business.

One of the options that many young people head toward first is an income-contingent plan through the government (or other lending agency) itself.  This may be a possibility, but you may find that refinancing is the better way to go.

Getting a lower monthly payment only causes you to pay more in interest, while refinancing generally means lower interest rates.  Shop around and you may be able to save hundreds of dollars per month.  That’s at least a big step in the right direction, to be used in combo with other strategies.

If you’ve heard that the credit inquiries that banks will make to determine your eligibility will actually hurt your credit score, you’re not wrong, yet you shouldn’t worry too much. Some of the best banks will perform only a soft pull first, and this doesn’t affect your credit at all. Those banks will execute the hard pull only if you like the rates of refinancing and choose to apply.

Crowdfunding and other options

One of the very justifiable worries that Millennials have when trying to balance a business with student debt is that it’s hard to get a bank loan with the college loan hanging over one’s head.

It’s true that many lenders will be skittish about young people with big student loan.  And to refer to the credit checks we mentioned above, yes, a large number of hard pulls of your credit rating (due to shopping around extensively for refinancing) can make things a bit harder.

There’s a lot to be said for traditional channels for financing a business.

However, it’s probably a better idea to pay less money in student loan interest overall.  So if refinancing your debt and the debt itself have closed off opportunities with lenders, Millennials may do what they do best, get creative.

You’re no doubt familiar with crowdfunding through channels such as kickstarter, Indiegogo, etc.  However, you may think that this is the domain of toasters made entirely out of hemp or other fantastical ventures; or movies.

There’s good news on the crowdsourcing front.  In 2014, $3 billion dollars were given in crowdfunding.  While the film and entertainment category gets the most attention, it raised $1.8 million, a far cry from the $6.7 million that went to the business and entrepreneurship category.

In fact, Millennials are actually the biggest contributors here.  So Millennial entrepreneurs may have great opportunities raising funds from their peers with whom they can relate.

While this may not be your only investment avenue, and while it may not work for everyone, it can be especially good with vibrant, youth-based ideas.  Further, businesses that are environmentally friendly or that promote racial or gender diversity or that are in other ways social conscious can have the most appeal when it comes to inspiring a donation.

Ask for help and use it

The burden of student loans is a burden, tightening your belt and causing you to have to be creative.  You’ll be looking for ways to cut costs, get the best supply chain if applicable, market inexpensively, and otherwise be as efficient as possible.  There’s an extent to which you’re trying to beat the odds by not only starting a business, but doing it in an unfavorable situation.

Therefore, asking around a lot is important.  First off, you may find a lot of creative avenues for funding.  For example, Penn State University’s Smeal College of Business has a student-managed venture capital fund meant to help recent alumni fund their businesses.    It’s important, then, to talk to professors and fellow alums to be aware of opportunities that may stem from one’s university.

However, it goes far beyond that.  And in fact, mentoring can be very useful in guiding you to success aside from helping you save money.  Wasp Barcode’s 2017 State of Small Business Report tells us that small businesses whose owners use mentorship are twice as likely to succeed (70% of them do) as those who do not.  Anything that can help against the odds of student loans is valuable.

Live Light

Sometimes people think of their business lives and personal lives as separate.  They feel that it takes quite a bit of money to get a business started (which is why so many fail to turn the profits necessary to stay alive), and that is that.

They get a bank loan and then live a personal life that is relatively free of penny-pinching and stress over spending.  Now, I’m not talking about buying only the most expensive coffees or getting a deluxe plan for one’s phone.  One assumes no one is doing that while trying to bootstrap a business.

But how many opportunities to cut back on personal experiences are you leaving on the table?  Are there any utilities or bills that your roommates share that can be switched to a cheaper provider?  If you’re not brown-bagging a lunch, can you?  Are you paying for any extra services of any kind that you may be able to cut back on, even if it does mean some inconvenience?

Can you sell your mountain bike and switch to hiking?  Can you do more outdoor activities in place of entertainments that cost a bit?  Can you share food more judiciously with roommates?  Can you move in with your parents?  Can you cut down on transportation costs?  What day-to-day expenses can you crowdsource?

This is all about making sacrifices now for rewards later. Yes, it may get annoying, but let it motivate you even more, and always remember, you’re choosing to be frugal rather than being punished.

At the end of the day, it’s only natural to be stressed about student loans when you’re trying to start a business.  They are a burden.  But it’s important not to fall into two common traps on opposite ends of the spectrum.  One, denying yourself your dream.  Or two, just trying to make that much more money to cover the loans.  If you’re not refinancing or otherwise cutting down your payments, you haven’t taken a very basic step.  The other strategies are also key for helping to balance a business with student debt.

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