There’s no age minimum for becoming an entrepreneur. Many people started their companies while they were still in college — examples include Mark Zuckerberg of Facebook, Steve Huffman and Alexis Ohanian of Reddit, and Matt Mullenweg of WordPress.
However, one of the most common difficulties new business owners face is access to funding. Find out which grants, programs, and loans for young entrepreneurs are available to help you launch your startup.
Financing options for new entrepreneurs
Getting financing for your business is a critical issue. According to a survey by the Federal Reserve Bank of New York, 58% of new companies faced challenges in getting capital to help them expand in 2016.
Part of the reason it’s so difficult to qualify for a business loan is that lenders won’t work with you when your company is new. Most lenders require your company to have been in operation for at least a year or two before they’ll consider you for a loan.
Luckily, there are other ways to get startup financing without taking out a business loan. Here are five options.
1. Angel investors
One of the best sources of financing for a new business is an angel investor. Angel investors are wealthy people who invest money in startups and business ideas. They also can provide business advice, connect you with contacts in the industry, and help you cut production costs.
To find an angel investor, post your business idea on sites such as Angel Investment Network.
2. Business accelerators
Business accelerators help startups become successful enterprises quickly and can help them secure financing.
At business accelerator programs such as Y Combinator, you can receive seed money, advice, and business connections in return for equity in your company. These programs can be useful, but you’ll have to give up some ownership and control of your company.
If you need funding, but can’t find investors and don’t qualify for a business accelerator program, another option is crowdfunding via sites such as Kickstarter. Using this approach, you post your business idea and plans online so that potential customers or enthusiasts can donate to help you launch your company.
Crowdfunding for business capital doesn’t guarantee you’ll get the money you need, but it can be a useful tool for some entrepreneurs.
It’s possible to win grants to finance your business. Grants are offered by some states, nonprofit organizations, and private companies. Unlike loans, grants usually don’t have to be repaid.
Fundera, a small-business loan company, offers a database of over 100 grants for entrepreneurs.
5. Personal loans
If used wisely, personal loans can be a smart financing option for your startup. Personal loan lenders care only about your credit and how much income you have, not how long you’ve been in business.
When you apply for a personal loan, you can borrow up to $100,000 and have as long as seven years to repay the amount.
What to know about loans for young entrepreneurs
When you need money quickly, taking out a personal loan can seem like the perfect solution for your business. However, keep in mind these three points before tapping into loans for young entrepreneurs.
1. Your loan could have high interest rates
Depending on your credit score and current income, you might not qualify for a low-interest personal loan. Instead, you could face rates as high as 199.00%.
You might think that premium is worth it to get the money you need right away. However, it’s important to understand exactly how those high-interest rates can affect your loan total.
For example, imagine you borrowed $25,000 to buy new inventory. Thanks to your less-than-stellar credit, you could qualify only for a five-year loan with an interest rate as high as 199.00%. Over the course of your repayment term, you’d have to pay back a total of $248,774.98. Settling for a high-interest loan would cost you nearly a quarter-million dollars.
2. You’ll have to repay the loan even if the business fails
With a personal loan, you’re responsible for repaying the loan even if your business fails and closes. That obligation can come as a harsh reminder every month in the form of an expensive payment, and it can strain your finances as you try to rebuild your career.
3. You put your credit score at risk
Personal loan lenders base their decision to approve your loan on your creditworthiness. In most cases, you don’t need to provide any collateral.
However, if you fall behind on your payments, it can ruin your credit score. That result can make it difficult for you to get approved for other forms of debt, such as a mortgage or car loan.
Starting a business
If you need funding for your business, it’s a good idea to explore all your options before considering loans for young entrepreneurs. If you do decide to move forward, make sure you borrow the least amount necessary and can comfortably afford the payments.
To find out more about becoming an entrepreneur, learn how you can start a business in one month.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|