Will Student Loan Debt Affect Your Small Business Financing?

According to a study by the Institute for College Access & Success, 68% of college graduates finished school with an average of $30,100 in student loan debt in 2015. And in March 2016, outstanding student loan balances stood at $1.26 trillion. This means student loan debt is the second largest form of consumer debt in the U.S., behind mortgages.

All this debt puts an enormous strain on young entrepreneurs seeking small business financing. But there is hope. The Small Business Administration found that small business accounts for almost 50% of the private economy. So it’s in the federal government’s best interest to see its young entrepreneurs succeed.

Student Loan Debt And Small Business Financing

That said, any kind of student loan debt is going to make financing more difficult. When determining how much you financing you may qualify for, lenders evaluate your existing debt and your ability to pay. If you have a high debt-to-income ratio (DTI), your chances of being approved for a large amount of money will decrease.

The unpredictable revenue associated with small business startups coupled with a monthly student loan burden does not make for an attractive borrower profile.

Student loan debt will affect your financing options, so how can you reduce the impact? You must either increase your income (ability to pay) or decrease your existing debt.

Since increasing income is what you’re already working on with your small business, let’s focus on decreasing existing debt.

Reducing Student Loan Burden

If you have a student loan backed by the federal government, you have options. You also have options with a private loan, but they are more limited.

If you’re not sure whether your loan is federal or private, navigate to studentloans.gov or the Federal Student Aid website. If your loan is not listed in either of these databases, you have a private loan. You can double check your credit report for the private loan. The report will tell you who holds your loan.

Income-Based Repayment

The federal government offers income-based repayment programs. These programs help reduce your monthly bills, and often the federal government will pay the additional accrued interest. You must fall within their criteria to receive this assistance.

These programs may also offer loan forgiveness after a certain amount of time.

Refinance

Private loans aren’t as forgiving as federal loans. Refinancing may be your best option to reduce monthly payments. You may run into the same roadblocks, however, as you will with small business financing. But if you can get a cosigner, or work part-time and show your lender that you are a good risk, you have a chance.

Be wary of immediately jumping into a refinance just because you can get a lower monthly rate. Do your research and analysis. Be certain the increased interest cost and fees are worth the increased chance of obtaining capital.

Save and Hustle

It’s true that young entrepreneurs are at a disadvantage when it comes to obtaining small business financing, but be sure to take full advantage of your assets. As a young entrepreneur, you’re likely to have fewer familial obligations. You can live simply now to achieve long-term success.

You have the flexibility to work hard and pick up odd jobs when your time and business needs allow. Make the best use of your time—it’s your greatest asset. And while it won’t show up on your balance sheet, it’ll pay dividends for years to come.