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.
U.S. Small Business Administration officials acknowledge that entrepreneurship can be an exciting adventure, but also point out it can be easier for younger people due to their positions in life. The barriers — including cost of entry — are low (working at home, online, etc.), and younger people may be unconstrained by the commitments of family and marriage.
In an effort to encourage entrepreneurial activity among the younger set, the SBA Michigan district office posted a blog on its website with tips to secure funding to launch, or at least ease the burden of trying to finance, a small business.
Deferring student loans: If student loan repayments are preventing you from starting your own business, the Student Startup Plan, offered through the White House-led Startup American initiative, enables college graduates — including those looking to start a business — to lower student loan repayments. Its income-based repayment plan can help keep loan payments affordable with a sliding scale to determine how much you can afford to pay on federal loans. This can give you the freedom you need to take risks with new opportunities.
Borrowing 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.
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.
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.
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 young entrepreneurs fall into — whether it’s a swank office, bigger computer systems than necessary 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. SBA offers a pair of guides to help new entrepreneurs: “How to Start an Online Business” and “Starting a Home-Based Business.”
One little known option for setting up a 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.
Additional resources: SBA offers other publications young entrepreneurs might find useful. “SBA’s Young Entrepreneur Guide” offers resources and financial support information. “Young Entrepreneurs: An Essential Guide to Starting Your Own Business” is an online training course. “20 Questions Before Starting” provides a list of questions that should be answered before making key business decisions.