5 Ways to Help Young Entrepreneurs Finance Their Business Ideas
Today is International Youth Day – so what better way to celebrate than to talk about the incredible potential of our young entrepreneurs? In 2012, young entrepreneurs ages 20-34 comprised more than a quarter of the total new entrepreneurship activity in the United States (according to the Kauffman Foundation). That was 26 percent of first-time entrepreneurial efforts being led by the youngest age bracket.
Entrepreneurship can be an exciting adventure, and it can be easier than you might think for the young. The barriers – including cost of entry – are low (working at home, online, etc.), and younger people are often unconstrained by the commitments of family and marriage.
So, do you have a winning idea on which you want to establish a business? While you don’t need a business degree or years of experience to succeed, you will likely need financing to get your idea off the ground. Here are some tips to help you secure the funding you need to launch – or ease the burden of trying to finance – your small business.
1. Deferring student loans
If your student loan repayments are preventing you from starting your own business, the Student Startup Plan (through the White House-led Startup America initiative) enables college graduates, including those looking to start a business, to lower student loan repayments. Its Income-Based Repayment (IBR) Plan can help you keep your loan payments affordable with a sliding scale to determine how much you can afford to pay on your federal loans. This can give you the freedom you need to take risks with new opportunities.
2. Borrowing startup funds from friends and family
With a lack of strong credit history, it’s sometimes challenging for young entrepreneurs to obtain traditional loans through banks or private lenders. In these cases, it’s not uncommon to reach out to friends and family – those who know and trust you already. This is a definite pro, but the flipside comes if something goes sour with repayment or terms and the potentially compromising situation that may develop for you. Check out this blog post for details about best practices and how to work with your friends and family in this capacity.
3. Consider crowdfunding
An increasingly popular method to obtain financing is crowdfunding – a collective cooperation of people who network and pool their money and resources together, usually online, to support efforts initiated by other organizations. Crowdfunding gathers multiple, smaller investments as opposed to a single source of funding. Learn more about crowdfunding here and in this other recent blog post.
4. The peer-to-peer potential
Like crowdfunding, peer-to-peer (or P2P) lending allows you to make your business case to others with the hope that someone will make an investment. The biggest difference between the two approaches is that P2P lending typically focuses on one individual lending to another (versus the “crowd” of lenders). P2P sites allow you to determine how much you need to borrow, define the purpose of the loan and post your listing online. Read about how to prepare your request in this blog post.
5. Avoid overinvesting
If you’re relying on your cash reserves, credit cards or savings to start a business, try to avoid some of the overinvestment traps that young entrepreneurs fall into – whether it’s a swish office, computer systems or inventory overload. Focus instead on building a good product and a positive customer experience. Starting a business from home or online are cost-effective ways to avoid some of these pitfalls. These two guides from SBA can help you get started:
One little known option for setting up your new business is to purchase government surplus products. Just about anything you can think of that your business might need is sold by the government at or below cost, or fair market value.
