Starting a Small Business Out of College: How to Handle Your Student Loans
Leaving college should feel like a gateway to opportunity — you’ve spent the last few years gaining knowledge and skills that can help you on your path to your ambitions. However, it can’t be ignored that college can also feel like a huge financial burden. Unless you have significant scholarships or savings, you’re likely to come away from the experience with some student loan debt. Unfortunately, if your career ambitions are to start your own small business, the idea of taking on additional financial responsibility on top of your student loan can be daunting. Indeed, one recent report found that a person with $30,000 in student loans is 11% less likely to start a business.
This hesitancy is certainly understandable. Your financial wellness can be a key factor in your overall mental well-being. But at the same time, holding off your entrepreneurial ambitions until you’re free of student debt may add different stresses to your life, and leave you feeling vocationally unfulfilled. So, is it possible to start a small business soon after you leave college while also handling your student debt? Yes, but it takes some work.
We’re going to take a closer look at some of the ways you can take care of your student debt obligations while also starting as an entrepreneur. What strategies can you employ? What helpful resources are at your disposal?
Exercise Financial Literacy
The college course you’ve taken is likely to have imbued you with practical skills that will help you on your way to starting a business. This is particularly the case if you’ve chosen to pursue a master of business administration (MBA) degree. Much of the curriculum here will be directly related to the running of your enterprise — communications skills, leadership styles, how to network efficiently. But one of the most helpful aspects that you can immediately start to use toward handling your student loan while running your business is a solid sense of financial literacy.
Some elements of this that you should utilize include:
This is likely to be the most important element of your financial literacy as you run your business and handle your student debt. While the thought of your finances can be overwhelming, you have the best chance of exercising control over them if you always have an accurate understanding of your financial situation. Make both personal and business budgets. Detail what your cash flow situation is — what is your income, what are your overheads? This allows you to make a liveable budget, but the key is to strictly stick to it.
- Alternative Payments
Part of being a business owner is often accepting that you’re going to have a certain amount of debt for some time, and knowing some strategies for dealing with it. The preferable route is always paying it down as soon as possible, but this isn’t always practical. Therefore, you need to research ways to minimize your repayments when times are tougher. Look into the potential for student loan deferment — this is likely to be possible if your income doesn’t meet a certain threshold. As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the requirement for Federal student loan repayments has been suspended, as has interest rates on them, until at least September 2021. There isn’t any indication as to whether there’ll be further extensions, but this not only gives you some financial breathing room, it also provides you with a comfortable time frame within which to make plans to apply for further deferment or to implement other options. Debt consolidation can be a good option too — combining your various loans into a single repayment can both reduce your monthly installments and make it easier to manage.
There’s nothing wrong with being enthusiastic about starting a new business. However, depending on the size of your student loan it may not be practical to dive into the deep end and fully finance a burgeoning large corporation. Part of being a smart business owner is understanding when to adapt to difficult situations. As such, it can be wiser — for both your financial and mental wellbeing — to start small.
Being a sole trader or contractor can be a less financially draining way to begin your enterprise. Consider what aspects of it you can do on your own and build up from there. If you are targeting cybersecurity, you might consider consultancy work. If you want to build a content marketing company, it can be practical to start with a freelance writing business. This approach allows you to gradually build up your profile and your client base, while also bringing in a steady income that you can use to start paying down your student loans. It can also give you key insights into what it takes to run a company — creating a sales strategy, performing outreach, and handling company finances such as taxes and profit margins. Not to mention that you can get a solid sense of how your student loan impacts your income. It’s a good, lower-risk structure to build from.
Fully Explore Funding
One of the reasons that can put college leavers off of starting their own business is the prospect that a company can add more debt to their student loans. With the average student loan debt in the U.S. currently sitting at $37,500, it’s no wonder that this is daunting. However, before shying away, it’s worth exploring what the alternatives to more debt can be.
These might include:
- Angel Investors
Investment can be the best approach if you want to avoid additional loans while you’re making payments on your student finances. These are usually independent financiers (unlike venture capitalists, which are usually companies) that tend to want to have a more active role in your company’s future. You get the advantage of gaining funding, and there’s also often an element of mentorship that can be valuable when you’re just starting out.
Particularly if your business has social or community benefits, a green focus, or is scientific research-based, you may qualify for a grant. These are often provided at the federal or state level, but you might also find opportunities from private organizations. This can take some of the financial burden off of your shoulders, allowing you to concentrate on running the business that will help you pay off your student loans.
Having student debt can be stressful, but it shouldn’t be a roadblock to starting your own business. When you apply your financial literacy skills and take a gradual approach to growing your enterprise, you can find it easier to manage your repayments while starting as an entrepreneur. Don't forget that there are alternative options to more debt, and it’s wise to consider the most appropriate approach to your situation and your goals.
Guest post courtesy of Ainsley Lawrence