Can you start a business when you have student loan debt?

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Starting a business is undeniably difficult, but with student loans, it can be downright impossible. It is well established that student debt can have a crippling effect on entrepreneurship, share of entrepreneurs aged 20 to 34 down to 27% in 2019, from 34% in 1996in line with average graduate debt at $30,000 now, up from $10,000 in the 1990s.

For a freshly graduated graduate, student debt can be like a handcuff, which could last well into middle age. That being said, if you are committed to getting your business off the ground, with the right planning and approach to budgeting, nothing should stand in the way of achieving your dreams. Here is some key information to start the process and help you better assess your financial situation before taking the plunge.

Alternative funding sources

We live in the golden age of seed funding with angel investors, venture capitalists and a growing number of crowdfunding platforms constantly looking for opportunities, but in reality, seed funding remains still rare. If you don’t have an innovative business model or a unique idea with a strong value proposition, your chances of raising venture capital in the pre-seed stage are slim.

For those mired in student loans, even business loans aren’t a viable option. Most banks will not be willing to bet on individuals who spend a large portion of their income servicing existing loans. However, you can still opt for a government-backed SBA loan, but even then you will need to have sufficient collateral and a good credit profile.

Understanding cash flow

Whether you have $10,000 outstanding or over $200,000 in student loans, your financial situation ultimately comes down to the portion of your monthly budget that is diverted to servicing debt. Opt for refinancing using services such as SoFi Student Loanswhether it’s for lower interest rates or longer terms can reduce your monthly debt, giving you plenty of breathing room to plan and maneuver.

A 2% rate cut on a $100,000 loan can help borrowers save up to $100 a month, and likewise, refinancing for longer terms, such as 15 years instead of 10, can result in substantial savings in your monthly outings. You may end up paying more interest in the long run, but the payoff is worth it if you expect better returns by diverting resources to your business or investment.

Borrowers can also opt for forbearance or deferment to suspend student loan payments for a period of time. The deferment is linked to a qualifying event such as unemployment, and it generally does not generate any additional interest in the case of a federal loan. Forbearance, on the other hand, requires no qualifying event, accrues interest, and is granted at the discretion of the loan officer.

start small

If student loans and other existing commitments make it impossible to start a business, it is recommended to start small. There are many opportunities for secondary agitations that can be started on a small scale, without major investment or time commitment, and scaled up over time. This includes opportunities such as dropshipping, freelancing, and internet marketing.

If you can build a business and start generating consistent income, it will be much easier to get approved for SBA loans, most of which require at least two years of experience. Managing one job, multiple commitments, while running a business can be difficult, but that’s precisely why it’s called a hustle and is at the heart of a vast majority of small business success stories.

final verdict

For most people, owning a business is a way out of the rat race. If you’re currently struggling to make ends meet with a student loan that’s weighing you down, exploring options to improve your cash flow, as well as side hustles to boost your income is the way to go.

Millions of Americans have taken advantage of the recent pause in student loans during the pandemic, to try his hand at various side businesses and pursuits. With proper planning and approach, this should work well for most people.

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