Advertiser & Editorial Disclosure

Advertiser & Editorial Disclosure

Thanks to the growing cost of college, student loans are a regular way of life for many Americans. With over $1.4 trillion in outstanding student debt and an average graduate carrying nearly $40,000 in student loan debt according to Student Loan Hero, today’s graduates are very familiar with the challenges of managing student loans.

The student loan phenomenon has a far-reaching impact in borrower’s lives. Not only do these loans require a big chunk of cash every month, they are proving to hold young people back from living on their own, buying a home, and even starting a business. If you have student loans that seem to be holding you back from your self-employment dreams, take a look at these tips to overcome student loans holding you back from entrepreneurship.

Student loans can hamper freedom and borrowing

There is no shortage of fodder pointing at student debt as a factor in holding back millennials and other entrepreneurs from starting a new business. With tens of thousands of dollars in debt, today’s recent graduates have plenty of financial struggle ahead. But with crippling student loan payments, doing anything beyond finding a regular 9 to 5 day job feels out of the question.

Student loans are taking a toll. Young people are delaying major life milestones like buying a home, getting married, and having children. When struggling to make ends meet, starting a business can seem like a faraway dream. However, people are figuring out how to start new businesses every day regardless of borrowing. There are some steps anyone looking to start a business should take to get on a solid financial foundation first. For student loan borrowers, these steps are even more important.

Save and build an emergency fund

The first step in getting your finances prepared to start a new business is to save. Experts suggest most people should have at least three to six months of expenses saved in an emergency fund. Business owners should double that to at least six to 12 months of expenses saved. Job security isn’t what it used to be, and for new startup entrepreneurs, there is no such thing as job security.

If you have a savings account with enough cash to survive six months without bringing in a dollar, you may be able to weather the financial storm of managing your new business before reaching strong revenue and profits. Outside of some service businesses, few earn a profit the first month. Even when those profits begin to roll in, odds are it will take at least a few months before you can start paying yourself. An emergency fund makes getting past that mark more likely.

Build a business to stand on its own

Next, consider how the business would stand on its own two feet. You will likely need to put in at least some money from your personal savings to cover startup costs. But the faster your business can stand on its own, the faster you will find both you and the business reaching for financial success.

Making your business financially independent won’t happen accidentally or automatically. Following these steps will make it an easier and faster experience:

Consider low-cost startup ideas – Craft breweries are hot right now in the United States. This glamorous industry requires startup costs ranging from $100,000 to over $1 million for equipment alone. The median cost to open a new restaurant sits just over a quarter million dollars. But if you can operate a service business that is online only, starting a website costs about $60 per year.

Startup ideas come in all shapes, sizes, and costs. If you have large student loans, consider a business model that is not capital intensive and requires startup costs that are a fraction of your current annual salary, not one that takes multiples of your salary to get started.

Separate bank accounts – As quickly as your business begins to take shape, open separate business bank accounts so your personal and business finances are not mingled. As long as your business and personal finances share a bank account, your business is not able to stand on its own.

Opening a new business bank account is simple. Once you file with your state to register a new business, you can take those forms to the bank to open your new account. From that point forward, keeping business revenue and expenses separate is easy. Doing so is also vital for business borrowing if that is in your future.

Build business credit – Speaking of borrowing, your business can’t borrow without good credit. New businesses are risky, and both banks and nonbank lenders can look at both your personal and business credit scores when making lending decisions.

Separating your business finances is the first step to building business credit. Opening a business credit card and ensuring vendors report your payment history are the next steps to achieving a strong business credit score.

Student loans don’t have to hold you back in business

Your student loans may be holding you back from starting a new business, but that does not have to be the case forever. Start by getting your finances in order and saving up, then work to build a business that is sustainable for the long-term.

Business banking and credit decisions are key to reaching business success when you have personal debts to pay. If you make consistent early and on-time payments and build a business that can support itself, business borrowing is easier if you ever find yourself in a cash crunch. That may be the difference between surviving a slow season and shuttering the doors for good.

Student loans might be your excuse for skipping self-employment, but it’s time to throw it to the curb. Get your finances in order and you can succeed regardless of your student loans. The only thing holding you back is yourself.