How to Start a Business With Student Loan Debt
There Are Many Options to Help You Succeed
Getting a college education these days can be a costly endeavor. If you are an aspiring business owner, but are worried about your student loan obligations precluding your ability to establish and/or finance a business, there is good news—many options exist to help you succeed in both arenas.
If you want to start a business, gaining control of your personal finances will help you when it comes to establishing your new venture. The status of your loan repayments can affect your credit score and hamper your ability to find financing, attract business partners, and work with needed vendors. If you have neglected to address your student loans, the time to take action is now.
Knowing what student loan repayment options are available to you and establishing and working out the details of your business’s feasibility and startup costs will start you off in the right direction.
Know What You Owe and Make a Plan
Do you know exactly how much you owe on your student loans? How about your interest rate? Having a general idea is not good enough. Here are some crucial steps to follow:
- Call your loan servicer to get answers to the above questions and any other pertinent, related information that you need.
- Once you know the total amount you owe, determine what you are able to pay at your current income level.
- Calculate how long it will take you to become debt-free at your current rate of pay (there are plenty of online debt calculator options).
- Find out if there are any steps you can take to increase the amount you pay monthly.
Explore Your Repayment Options
Federal Loan Repayment
If you owe federal student loans, there are several repayment options to explore. In addition to a standard repayment plan, there are graduated, extended, pay-as-you-earn, income-based, income-contingent, and income sensitive plans. Keep in mind, though, that not all loans qualify for all repayment plans.
To find out which plans you may be eligible for and to estimate your monthly payment under each plan, use the loan simulator on the Federal Student Aid website.
Private Loan Repayment
Many private loan providers also offer repayment options. Some of these options include allowing you to defer payments while in school or during military service, or make interest-only payments after a separation period. Another option to consider is consolidating and/or refinancing your loans, because it may be easier to keep track of one loan than it is of two or three. There are now several companies that consolidate or refinance student loans at low rates, including CommonBond, SoFi, Discover, and College Ave. Be sure to check all the details before you make the switch.
Bolster Your Business Savvy
While you are working on paying off your debt, make sure to take the time to develop your business acumen.
Start by researching and determining if your idea is unique to the marketplace or if you’re just adding another option to an already crowded field. Either way, it’s worthwhile finding out what the market will bear.
If you have a product or service in mind, there are several important questions your first need to address, including:
- What is your value proposition?
- How much will it cost to develop and produce your product?
- What equipment will you need?
- If you are offering a product or service, who is your target audience or client base, respectively?
- What’s the risk of your idea failing?
Once you have a well-rounded base of knowledge in every aspect involved in establishing your business or product—development, production, distribution, supply chains, and tax implications included—you should have a much clearer idea of its feasibility.
For additional help on starting your business, the Small Business Administration (SBA) provides a step-by-step guide.
Financing Your Startup
Now that you have the information, calculate how much money you need to get started in your venture. The SBA, once again, provides a free resource to help you. Typically, you will need to have enough money to cover the cost of product development, permits and licenses, insurance, leasing space or equipment, marketing, and taxes.
Banks and credit unions offer a number of small business loans, but there are also several government grants available to businesses that qualify from Grants.gov, the U.S. Department of Agriculture (USDA), and more.
Additional Tips and Resources for Starting a Business
Starting a business while handling your student loan obligations may be a challenge, but by educating yourself and taking action, you can realize your dream. Here are a few more helpful tips and resources.
- Get a mentor or coach: One option is to contact SCORE, an organization that fosters small business communities through mentoring and education. It also offers help on starting a business on a small or non-existent budget.
- Don’t be afraid to start small: Some of the most successful companies like Apple, Dell, and Facebook were born out of their creators’ dorm rooms and homes, so don’t be afraid to start small. Explore home-based and online business options as an initial way to bring your product or service to market.
- Share the load: Find a business partner or two who can bring their strengths (and, perhaps, higher credit scores) to bear on the project.
- Investigate nontraditional funding alternatives: These include angel investors, crowdfunding, microlending, and startup incubators.