One of the main factors prohibiting people from starting a small business is outstanding debt. There is a direct correlation between people carrying debt from student loans in a given location and a lack of small businesses. However, student debt does not mean you cannot own a small business while repaying college loans.
Find out how much you owe
Before starting a small business, get a detailed credit report. This will give you an accurate idea of any outstanding debt you may have. Then approach lenders to get the exact figure. In the case of federal student loans, the FSA website will let you you look up your information to see what you owe.
Make scheduled payments
Paying down debt is important as a general rule, but especially when you are starting a small business. Missing loan payments can severely impact your credit rating, which can prevent you from getting small business loans from banks. Banks look at student debt as a red flag, and when it is compounded with missed loan payments, they will be quick to reject any small business loan applications. On the other side of the coin, making payments on those loans at the scheduled due date or before will vastly improve your credit rating.
Adjust your repayment plan
Federal student loans have a very flexible repayment schedule, which is great for emerging small business owners. Most federal student loans have a payment plan of 10 years, but that can be extended to 25 years. There are also options to have loans paid down from a set percentage of your income (usually 15% of your earnings), or to have the repayment adjusted to the amount you earn – a scaled or “income contingent” repayment. These are all great options for people starting small businesses, and talking with someone about adjusting your student loan repayment plans can help get your small business launched, with much less of an impact on your revenue.
Consolidation is key
For small business owners with multiple private (non-federal) student loans, consider consolidating them into one monthly payment. There are many debt restructuring plans to consolidate student loans, but it pays to research your options. Some options involve putting the individual private loans under an overarching loan, which can hinder the chances of getting financing or equity loans to start your small business.
An often overlooked option by emerging small business owners is debt forgiveness. There are many student loan forgiveness programs, each with their own qualifications. There are even student loan debt forgiveness programs that will eliminate loan debt in exchange for volunteer work. This is a very good strategy for people looking to launch their own small business, and that volunteer work can lead to strong networking connections and experience through good will.
Owning a small business should not be an unobtainable dream because of students loan debt, and by researching the options available to eliminate that debt, you can make our small business dream a successful reality.