Starting up a new business is always challenging, no matter how old you are.
Entrepreneurs of all ages have to face down the negativity of well-meaning friends and family members who think that they'll end up bankrupt if they follow their business dream. There's also the added burden of self-doubt and fear that the naysayers will be right. Following your dream of starting your own business requires a lot of strength and determination.
Along with all of this, there are some specific financial challenges that young entrepreneurs have to contend with which don't affect older businessmen as frequently. Here are six challenges facing young entrepreneurs that you might not have considered.
Lack of Personal Capital
Every new business idea, no matter whether it's for products or services, requires one vital thing: Money. It can take years before a new business is making a profit, but that doesn't mean it won't succeed. Every entrepreneur needs to begin with a certain amount of seed capital to pay for the cost of hiring staff, renting premises, buying or leasing equipment, marketing, etc.
Entrepreneurs who are middle-aged or older have often built up some savings that they can draw on in the very early stages. In contrast, young entrepreneurs are just at the beginning of their earning days. Not only do they not have any savings, they are frequently still paying off their student loans. They don't have any nest egg to use as emergency funding.
Fewer Networking Contacts
When you start a business while still in your 20s or 30s, most of your schoolmates and college friends are still just starting out too. You don't yet have a web of connections in high places or contacts with successful jobs who would be willing to invest in your business idea just because they believe in you.
When you're searching for funding options you also lack those well-placed connections who could suggest your nascent business to a venture capitalist they know, or who would serve as a valuable reference in your hunt for funding.
With fewer established connections in the business world, young entrepreneurs also lack a natural way to promote their products or services. It can take longer for your business to become known without the support of any well-respected businessmen, which means it can also take longer to turn a profit.
Poor Credit History
In general, the older you are, the better your credit history is. Older entrepreneurs have generally had time to build a solid and high credit rating. Their youthful mistakes disappeared off of their credit reports long ago.
But young entrepreneurs aren't in the same situation. All of their foolish financial mistakes are still very prominent on their credit reports, making credit card companies and loan companies alike turn them down for financing or offer only very high rates.
Sometimes, young entrepreneurs really only have a poor credit history because they are still young. If you only got your own credit card for the first time a few years ago, you might not yet have built up enough credit history to show a good credit score. Notice that there are credit cards for borrowers with fair credit that might be useful for young entrepreneurs.
Youth might have the energy, but as you get older, you tend to be viewed as wiser and more responsible. This is an advantage when you need to convince investors that you're a reasonable financial risk. Young entrepreneurs can find that some bank managers and investors are very reluctant to trust them with a loan or venture funding simply because they think that they are too young.
No one likes the feeling of owing money, but as you get older you realize that some debt can be positive, depending on the loan and its purpose. A short-term business loan that's taken out with careful planning of repayment schedules and with the right APR rates can be an excellent way to deal with startup capital or early cashflow issues.
However, young entrepreneurs often still feel nervous or even scared about getting into debt. For many younger entrepreneurs it's not even an issue of fearing debt but of fearing piling it too high. Many people who start a business in their 20s and 30s are still paying off student loan debt and have a mortgage and/or auto loan to pay off, as well. Adding a business loan to that might just be too daunting.
No Safety Net
Older entrepreneurs also often already have some kind of retirement fund and pension that they can fall back on if their business fails. Young entrepreneurs can be struggling to raise money for their startup at the same time as wanting to settle down in a relationship and perhaps start a family. The lack of a financial safety-net can be very worrying to young entrepreneurs.
Although young entrepreneurs have to deal with unique challenges that don't affect older entrepreneurs, they also have energy and a fresh perspective that bring unique advantages so that they can still succeed.