Starting an Online Business When You’re in Debt

By Julian Hills

So you want to start an online business?

Startups have a positive effect on the economy. A recent article from the Consumer Financial Protection Bureau found that each new startup added about 5.3 new jobs over the past decade.

That’s a good thing, but financial fears may be putting a drag on that statistic.

In the period between 2007 and 2010 — the height of the recession — the number of startups fell by 23 percent. The economic climate caused many would-be entrepreneurs in the technology sector to defer their dreams, specifically because of rising student loan debt. Student loan borrowers have lower credit scores than peers with no student debt.

That’s not such a good thing.

Knowing how to manage your resources and using a little creativity could be the key of starting a business while mired in debt.

• Choose Your Startup Wisely: Select a business that does not require a lot of startup capital. Use equipment, software and supplies you already have. Avoid spending money on new business investments as much as possible.
• Manage Student Loan Debt: If most of your debt is from student loans you should see if you can lower your payments. Young business owners can often lower their federal loan payments by Income-Based Repayment (IBR.) More information about IBR is available at the U.S. Department of Education’s National Student Loan Data System (NSLDS) website at www.nslds.ed.gov.

Private loan borrowers can see if refinancing at a lower interest rate is an option.

• Use Free Resources: Go to the library and use their media and business resources. There is also free online software, blog sites and other services that you can take advantage of, and cost you nothing.
• Find Investors, not Banks: If your business plan is good enough, you may not have to go to banks for investors. There are grants, community programs that help people with limited resources. Crowdfunding is becoming more popular. That involves getting regular people to invest in your company through social networking sites.

The Small Business Association has an entrepreneurial help program called Startup America. It’s a partnership between the public and private sectors aimed at expanding access to startup capital, increasing education, encouraging collaboration between big companies and startups and reducing red-tape. Find out more about the program at their website: https://www.sba.gov/startupamerica.

• Find Cheap Ways to Market Yourself: Getting out the word about your business is important. You can get business cards printed at relatively inexpensive cost. Using social media, blogging and email to market your startup is free.
• Don’t Pile on More Debt: The temptation to use credit cards (if you have them) or trying to get more loans or lines of credit is going to be there. It might be wise to raise money by considering selling things you can live without online or at a good old-fashioned yard sale.

Sometimes it takes loads of money to start a business, other times it may just take a laptop. Figuring out what you need or don’t need can trump what you see as limitations caused by debt.