If you’re one of the millions of Americans, that recently restarted student loan repayments and you own a small business, you’re well aware of the impact of this added expense. As with any debt, it’s important to have a strategy in place to pay it back as agreed to keep your credit clean and keep your business growing.
In this guide, you’ll find tips and advice to tackle your student loan debt as a business owner, and what to consider if you’re starting one. While it may feel challenging, you don’t have to face it alone!
The impact of student loan debt on small business owners
If you have student loan debt, you’re probably not surprised to learn that you’re in the majority. In fact, according to Forbes, more than 50% all college students leave school with student loan debt.
Additionally, a Capital One poll of small business owners found that about 33% of small business owners report “student loan debt has negatively impacted their ability to scale or grow their business.”
When you started your business, your student loan debt was likely a determining factor when you considered taking on the risk of launching a new business. Given the percentage of the population managing student loans, it could also significantly stifle creativity and innovation in the American economy.
The federal government offered some reprieve during the height of the COVID-19 pandemic, but when that pause ended, repayments began again. And although there are proposals to help alleviate impacts with various relief programs, for many borrowers, monthly payments continue for some or all of their outstanding balances.
Five tips to manage student loan repayments for business owners
As intimidating as student loan debt may be, millions of small business owners like you are successfully navigating it.
Here are three keys to overcoming the financial challenges:
1. Understand that personal debt, including student loan debt, is a significant factor in your business’s financial picture.
Even when you’re applying for financing for your business, your personal credit history determines will be reviewed by potential lenders. For that reason, staying current on all your debts, including your student loans, is important to maintain a positive credit history.
As mentioned earlier, your student loans come into play when you’re starting a business, but they also have an impact when you’re growing your business. When you’re getting started, you’re likely putting your own funding into the business, and you might do the same to fund new opportunities as they begin. In these cases, you’ll need to review all your expenses in your personal life to ensure you can pay everything as agreed while funding your business.
What debt or monthly obligations can you reduce or eliminate to strengthen your personal bottom line before launching or growing? For example, reducing your car and/or housing payments can give you more personal liquidity to put toward student loan payments without compromising your desire to launch or grow your business.
Improving your debt-to-income ratio will also help you build and maintain a strong credit history.
2. Use this as an opportunity to create and grow a smarter, stronger small business
Many successful small business owners manage student loan repayments by understanding and optimizing all aspects of their financial picture: their personal finances, debts, and goals, as well as those for their businesses.
For example, a common mistake you might make is neglecting to factor in paying yourself as part of your business’s budget. As a result, you can underestimate your expenses and leave you and your business in a challenging financial position.
On the other hand, if you factor in regular payments to yourself, you’ll be better positioned overall. You’ll have the money you need to meet debt obligations for you and your family, while also building a profitable business. This strategy alone will significantly reduce the stress of student loans and other obligations.
3. Know that lenders don’t necessarily view student loan debt negatively.
If your business needs financing to launch or grow, the idea of applying for a small business loan – let alone taking on more debt at all – can stop you in your tracks. Will lenders even approve loans for borrowers with student loan debt?
The answer varies from situation to situation. It’s important to know that many lenders recognize that student loan debt is a longer-term debt that’s an investment in your skills and knowledge.
The key for lenders is whether you’re repaying your debt responsibly. If so, then student loans may help you build a positive credit history, rather than work against you.
As with any debt, if you’re having trouble repaying your student loan, you’ll need to work out a payment plan with your lender. Be upfront with a potential business lender about this situation and show them your plan to repay the debt. There are also options like the SAVE program, which is a federal initiative that determines your payment amount based on income and family size. Being proactive and responsible always reflects positively.
4. Seek professional financial advice
Working with an accountant or Certified Public Accountant (CPA) has many benefits beyond tax season. They can develop beneficial financial strategies based on your personal and business goals, and give you insight on managing your student loan debt and other expenses. You accountant or CPA can advise on investments to make in your business (and when) and find tax credits or deductions you might miss that can boost your bottom line.
5. Create, review, and stick to personal and business budgets
Your business budget Budgets creating a realistic financial picture of what you need to successfully operate and reach your goals. A well-developed, and maintained, budget will set boundaries for your spending and goals for your revenues. It keeps you focused so that your business isn’t spending more than its earning, and ensures you know where your money is going. In short, it’s an essential tool for your business and personal life.
Make sure your monthly student loan debt payments are included in your personal budget, as well as all your living expenses. This will give you a clear picture each month of how much personal funding you have available to invest in your business as needed.
Pursuit is here to help
As with any debt, they key to success with student loan debt is to stay proactive and repay it as agreed. If you’re growing your business and need to reserve your personal funds for your personal obligations, maybe it’s time to consider a small business loan!
Pursuit has business loans for working capital, to refinance business debt, and more for businesses in New York, New Jersey, Pennsylvania, and Connecticut. Reach out today to learn more about how we can work together.
