Young Entrepreneurs: Tips on Getting Financing

The entrepreneurial drive for twenty-somethings is increasing every year, and there are plenty of successful entrepreneurs who began their enterprises well before their twenty-fifth birthday. Age doesn't matter when it comes to building a strong business plan and coming up with great ideas; in fact, one could argue that the younger generations are even more creative. One of the main problems that holds young entrepreneurs back is financing; they don't have the experience or the business history to secure financing through traditional means.

My best advice for the young entrepreneur is to plan as much as possible in advance. You can't walk into a bank or credit union with a sketchy idea for a business and expect to be handed a check; instead, you'll have to go to even more extensive means in order to get your point across. A great concept is all well and good, but you'll need more than that to convince a lender.

Your first step will be to put together a notebook that details every aspect of your potential business. For example, let's say that you want to open up your own restaurant. Your notebook will include possible locations, key demographics, furnishings, decor, utensils, estimated number of employees, building permits, equipment and everything else you will need to start the business. You should include pricing estimates from at least two vendors for each item as well as pictures if possible. The more information you include in this notebook, the better prepared you will be.

Next, young entrepreneurs must consider all possible sources of financing. In most cases, it will be better to seek several small sources of financing from several different lenders. For example, if your first round of financing requires $100,000, you will be better off seeking four sources of financing of $25,000 each. This increases your chances of being approved and lets the lender feel more comfortable in approving the loan.

Many young entrepreneurs make the mistake of seeking financing in the form of credit cards. Even if you can obtain a credit card with a sufficient credit limit, I would advise against it. Credit cards are dangerous when you don't know how quickly you'll be able to pay them back, and all start-up businesses - particularly for young entrepreneurs - stand on shaky ground for at least the first year.

It is also difficult for young entrepreneurs to get financing through angel investors, which are wealthy individuals who take large risks in providing finances to start-up businesses. Most angel investors are more comfortable dealing with experienced business owners who are pursuing new start-ups rather than young entrepreneurs who are "more likely" to run their businesses into the ground. However, you might have some luck pursuing financing with angel investors in the smaller increments I mentioned above. You'll just have to remember that small investments are not necessarily high priorities, so it might take some time.

And finally, many young entrepreneurs get their starts by seeking financing from relatives. If you have wealthy parents, grandparents, aunts, uncles or friends, you might consider approaching family members with your start-up business plan. This will likely depend on your relationship with that person and your track record for handling debts and loans, but it is certainly something to think about if you think a relative might be ammenable.

The one big trap to which young entrepreneurs frequently fall victim is a lack of patience. Starting your own business is exciting, and no doubt you are anxious to get the ball rolling. However, approaching it from a logical and systematic viewpoint will be to your advantage in the end, and you shouldn't give up just because getting financing proves difficult. For advice on pitching your business idea to possible lenders, check out F&B Publication's article: How to Sell Your Business Plan.