As an entrepreneur and business owner, money is always on my mind. While I was writing my last article -- on the unfortunate state of small business lending -- I started thinking about student loans and how its ease of access compares to business loans.
For recent graduates looking to start a business while saddled with student loan debt, the prospect of procuring a business loan from a bank is bleak. Getting a student loan is almost too easy. According to Nav, 45 percent of small businesses that applied for a loan were turned down more than once. In terms of student loans, Credit.com says they may be too easy to obtain and CNBC reports "the average number of [student] loans is 3.7 per person, up from 2.4 per person 10 years ago."
Think about this: Someone with a solid business plan in need of a $100,000 loan would have a much harder time locking that money down than an 18-year-old with no credit history who wants to major in art history. Ouch.
Typically, a small business is going to generate revenue a lot faster than a student. A student takes an average of four years before getting a legitimate entry level job. Obviously, students can choose majors other than art history for potentially lucrative careers. Maybe these careers benefit society, too. Maybe they don't.
There are about 29 million small businesses in the U.S. employing about 57 million people. This makes up an astounding 99.7 percent of U.S. businesses and 48 percent of U.S. employees. While education is important, it's more important for some than others -- and small business is very important to the American economy.
Let me be clear: While I think there are plenty of problems with student loan debt, I'm not advocating that it should be harder for students to get a loans. I'm using the ease of access and return as a comparison to say that it should be a lot easier for aspiring entrepreneurs to obtain low-cost loans.
As we progress as a society, more people who would have normally gone the traditional route of college are deciding to start businesses instead. They see the debt their peers are racking up and don't think they need to take that on in order to produce revenue and participate in society. Chances are these individuals can get money for school but not to start a business, leaving these them in quite the predicament.
Peter Thiel, PayPal founder and venture capitalist, has a fellowship for young people forgoing college to start a business. Promising individuals receive $100,000 to start a company. In 2015, it was reported that out of 84 people who started in the program, only eight have gone back to college. A few of the entrepreneurs even sold their companies to big names like Box and Palantir.
Thiel claims that college is an automatic thought in people's heads because it's all they've been told--college equals options. But nowadays, there are many more options for generating revenue and being a productive member of society than higher education.
The bottom line is that it's harder for someone to get money to launch a business and create jobs for our society than it is for someone who doesn't necessarily have a plan to take classes for four years. Our student debt problem actively hampers the economy. Our loaning practices are out of date. We need our banks to reassess how they assess risk for the betterment of their business, your business and my business.
For those of you wishing to start a business and not go the traditional route of higher education, you do some options. On the more difficult side of things, you can enter competitions that give startups money--like TechCrunch Disrupt, for example--or you can apply for grants from the federal, state, or local government. The problem here, especially with the grants, is that they're usually devoted to specific industries or efforts deemed important by the government.
Two easier options are credit building and crowdfunding. To start building your business credit, open an account with a local bank, preferably one you already have a consumer account with so they know and trust you. To get financing from the masses, do some research on how the most successful Indiegogo and Kickstarter campaigns were ran and setup a page on one of those websites. Feel free to reach out to me on Twitter if you need any more tips or advice!