Debt or No Debt. Inability to Borrow is Not Keeping You From Success.
Recently, an article in the New York Times came across my Twitter feed. The article, titled “For Young Entrepreneurs, College Debts Can Snuff Out Start-Up Hopes” discussed the crushing levels of student loan debt contributing to budding entrepreneurs’ difficulties obtaining financing to build and grow a business. Much of the subsequent commentary on Twitter and the article itself centered around generational attacks.
Debt or no debt, the discussion has nothing to do with generational boundaries or motivation or the rising costs of higher-education. It has to deal with making financial choices that have impacts on our lives and futures.
Entrepreneurs, College is Not a Requirement
Many of the world’s most famous and multi-billionaire entrepreneurs never finished college. I know many people that never attended college that started their own businesses in the automotive, professional service or other industries and have made a living — some very good livings. A college education is not a requisite to starting a business. Borrowing $40,000 to attend classes when your goal is to build up a business and be out on your own may not be the best idea. Anyone that has a service business, whether it be professional services, web design, landscaping, painting or more never gets asked about their college degree when submitting a proposal.
Many alleged aspiring entrepreneurs attend college, take on debt to do so and decide to focus on their business after they graduate college. This makes no sense for many reasons. There are plenty of examples of people operating businesses out of their dorm room. From web site design, to financial modeling to baking cookies. If you are serious about starting a business and being an entrepreneur and you are in college, start now. Odds are, you have a roommate or live in a dorm or with your parents; if you are saddled with student loans, in most cases the terms and current financial expenses are far more favorable in terms of interest rates, repayment schedules and more than when you will be out of school. This sure beats typical financing from banks or investors that require far more stringent payback terms and equity participation.
If you are dead set on being an entrepreneur, think again about finishing college or even going at all, particularly if you can see the future. Part of being a successful entrepreneur is having some foresight about what is happening next, regardless of industry. If you can see down the road you will have $50,000 debt for going to school, take that factor into consideration when starting a business and if you can build up enough momentum while going to school to support servicing that debt.
How Much Does It Really Cost to Start a Business?
The media is flooded with stories of large seven, eight and nine-figure capital raises. Most businesses that start-up don’t require this level of capital. Or even the level of capital needed to require borrowing money from a bank in a traditional sense.
I look back at a few businesses I have started. My web design business — my biggest out of pocket expenses were my own .com address ($70 for 2 years via Network Solutions), $150 for filing my articles of incorporation and then software. I used my college’s Internet connection, library, dorm room and mailbox very resourcefully. I even used the computer lab and pre-installed programs like Microsoft FrontPage to build web sites. Initially, business was slow but thanks to some kind referrals, online marketplaces and having a web site, I was able to snag a few clients. Not enough to make a living, but a few hundred dollars a month went a long way. Especially, when I landed my first decent contract with an agency and I was required to use Macromedia Dreamweaver and associated products — I recall spending nearly $1,000 on the software. Fortunately, I had some momentum and was able to swing the expense. However, without being dedicated to building the business and my underlying skills, this would not have happened. Out of school already? Try co-working places or making Starbucks your office for the price of a cup or 2 of coffee each day.
A start-up’s or entrepreneur’s best friend is not capital — it is sweat equity and building momentum. If you want to be an entrepreneur and remain in college, do not wait until you graduate to start building the business. I agree, that if you are planning to start your business on day 1 after you graduate, holding $50,000 of debt, have required monthly payments toward the loan and now have to be 100% on your own for software, Internet and more and $0 of revenue you are going to have a bad time.
Start early — start now. A few hundred dollars coming in on the side goes a long way to help with bills and more importantly, provide some base-level of clients to gain referrals.
Understand What It Takes to Get Financing
If your business really does require capital in the amount that justifies taking out a loan, understand some of the things that will help or hurt your chances. You know who does not get loans? People that have $50,000 in debt and wanting to start a business that has zero income stream. You know who else does not get loans either? People with zero debt with a business venture that has $0 of revenue. If you want to improve your chances of getting a loan, start to build up a client base to generate some income and showing the bank or credit card that you actually have money coming in. You know what else can help? Showing you have a good payment history. For example, many student loans do not require payments until after graduation. Banks would rather loan money to someone that has a history of making timely payments and reducing debt, even if the income the borrower can show is very limited. If you are not making payments on your college loan because you are in college and want to be taken seriously be lenders, start paying some of it back now.
Assess Your Situation
If you absolutely cannot manage your school work and starting a business simultaneously, ask yourself the following questions.
· Am I really cut out to be an entrepreneur? Being an entrepreneur often requires doing many different things and managing various responsibilities at the same time. If that is not your cup of tea, going out on your own may not be for you.
· Do I really need to finish school? If you believe in your business that much, then put school on hold. Avoid taking on a liability that will hinder my ability to grow a business or pay my bills once I get out? 2 years less of classes means 2 years less of debt you have to carry and service.
· Can I wait to start my own business? Go to school, get a degree, aim to land full-time employment at an established company (I know that is not a guarantee these days either) and build up some skills and a nest-egg that can help your entrepreneurial spirit. Sometimes, patience is our best friend. And even if you are waiting, there is nothing wrong with moonlighting to start to build momentum.
Blame who you want — the Baby Boomers messing up the system, the Millennials and their laziness, the government approving increases in state university costs, the government making student loans very accessible. Nobody will ever fully agree on who is at fault and for every person that cites blame on a factor there is another person on the other side disagreeing.
Blame yourself. Not repaying loans now? Not demonstrating you have the ability to generate some incremental revenue for your business? Avoiding unnecessary debt that is not helping your business at all? If you answered no, you are not doing yourself any help in terms of gaining financing opportunities and establishing a foothold.