Millennials Want to Start Businesses but Can’t Get Funding
America is “open for business,” according to its latest president. Indeed — for a couple generations now,
business-ownership has been a familiar staple among our many American dreams. With the economy and the workforce soon to be squarely in the hands of millennials, many young people are beginning to
wonder about their own prospects of owning a business.
Unfortunately, emerging trends are not on the side of millennials. Currently, thirty- and forty-year-olds still account for almost two-thirds of business-loan applications. Applicants over the age of sixty
represented the smallest pool of polled applicants, yet they took the biggest share of loan approvals.
Millennials had the lowest approval rating among demographics studied.
The question is this: Who took the “fun” out of funding — and how can millennials bring it back?
Millennials Want to Own Businesses
The problem is not a lack of interest, clearly. We know because additional research reveals a strong majority— more than half! — of millennials today would gladly leave their current job if it meant starting their own business. That’s a huge amount of interest. But the single greatest barrier right now is the difficulty of securing funding.
If you’ve ever applied for a credit card or a loan yourself, and you almost certainly have, you know that
your credit history, credit worthiness, stable employment, past business ownership and liquid assets all
play a role in whether or not you receive approval. Naturally, most millennials do not have long histories of employment or past experience launching businesses. The same limitations apply here as would apply if a millennial with zero credit history applied for a dozen high-limit credit cards all at once.
Nevertheless, we live in a society that prides itself on its friendliness toward entrepreneurs and “self-
made men and women.” Since creditworthiness is something some folks are born with but others have to try extremely hard to achieve, the lingering question for millennials is what they can do to improve their chances of landing a business loan.
How to Improve Your Chances of Approval
The existing alternatives for millennials — in the event they’re turned down by a credit union or a bank — are not terribly attractive. Non-bank lenders tend toward extremely high interest rates, which simply
punts the millennial capital problem down the road. They might get some funding now, but the long-term costs could be crippling in ways that don’t fully reveal themselves until you’re in over your head. Clearly, it pays to take things slow and be sure you know your course before diving in.
So what’s a young entrepreneur to do? Here are some strong fundamentals to keep in mind as you chase
down new sources of funding:
If you have ambitions of becoming the owner of a business at any point in the future, you need
to start thinking about credit yesterday. The responsible use of credit cards, regularly making car
payments and never missing payments of any kind can all help you build a solid credit history.
The sooner you start, the better your chances of securing business financing later on in life.
Take expense accounting seriously — yes, that means all of your expenses. One of the biggest
reasons you’re not creditworthy, and why many ambitious businesses fold before their time, is
because their owners go crazy about expansion and over-extend themselves. Track every dollar
as you go and balance your incoming revenue with your outgoing dollars.
It is also known that younger borrowers, when they do secure a lender, tend to invest their new funds immediately in physical equipment and other assets. Older and more experienced
borrowers bring a different perspective and invest not in flashy purchases, but in their working
capital and overall financial stability.
There are serious lessons to be learned here. There might be legitimate cases where a person’s youth
might be unfairly held against them by a would-be lender, but the more common explanation why older
folks get most of the business loans right now is because they’re in a better position to put that money to
work. They have experience, and they know in most cases that calculated expansion is better than
flashily overextending themselves in week three.
However, you can cast a wider net by exploring opportunities specific to your state, city or county. You’ll
often be able to find grants, incentives and other financial resources, sometimes right in your backyard.
Depending on where you live and the leanness of your operation, you might be able to side-step
traditional lenders entirely if you’re crafty and know where to look.
The Merit of Good Ideas
As a millennial striving toward business ownership, hopefully you have some ideas now about the
fundamentals you should nail down. Honestly, even high school isn’t too early to start building a credit
history if you have parents or mentors to help you do it. You’ll be that better off later on — and
potentially in a position to compete directly with more seasoned loan applicants.
Finally, lest it be forgotten, the great equalizer is a truly great idea. Whatever other financial realities
might be in the mix, doors tend to open for the right idea. What’s yours?