If you’re one of the millions of Americans who have student loan debt 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 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!
How does student loan debt impact 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 economy.
Although there are many proposals to help alleviate the impacts through various relief programs, for many borrowers, monthly payments continue on some or all of your outstanding balances.
5 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 five strategies to help you overcome 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 entire personal credit history will be reviewed by potential lenders. 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.
Here’s what you can do:
- Review all your personal expenses to ensure you can pay everything as agreed while funding your business.
- Stay current on all your debts, including your student loans, to maintain a positive credit history.
- Reduce or eliminate debt or monthly obligations to strengthen your personal bottom line before launching or growing, like your car or housing payments
- Improve your debt-to-income ratio to help you build and maintain a strong credit history.
By strengthening your personal finances, you’ll be better positioned to support your business and access the funding needed to grow.
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, including personal finances, debts, and goals, as well as those for their businesses.
Here’s what you can do:
- Consistently pay yourself and include it in your business’s budget
- Avoid underestimating your business expenses by accounting for personal financial needs upfront
- Align business revenue goals with personal obligations
- Optimize your personal and business finances to build a profitable business.
This will help you be better positioned to meet debt obligations and 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.
- Stay on top of your student loan payments to build a positive credit history
- If you’re having trouble repaying your student loan, work out a payment plan with your lender
- Be upfront and transparent with a potential business lender about your situation and show them your plan to repay the debt
- Explore income-driven repayment (IDR) plans that can provide a lower monthly payment based on your income and family size
Ultimately, being proactive, responsible, and transparent always reflects positively on a lender.
4. Seek professional financial advice
Working with an accountant or Certified Public Accountant (CPA) has many benefits beyond tax season. A trusted advisor can help you align your personal and business finances and give insights into managing your student loan debt.
- Work with an accountant or CPA to create a financial strategy that reflects both your personal obligations and business goals
- Gain guidance on managing student loan debt alongside other expenses and investments
- Get advice on when and how to invest in your business
- Identify potential tax credits or deductions that can boost your bottom line.
With the right guidance, you can make more informed decisions, reduce your risks, and position your business for long-term success.
5. Create, review, and stick to personal and business budgets
Creating and maintaining budgets for both your business and personal finances creates a realistic financial picture of what you need to successfully operate and reach your goals.
Here’s what you can do:
- Create a well-developed, and maintained budget for your business and personal finances
- Set clear boundaries for your spending limits and goals for your revenues
- Ensure your business isn’t spending more than its earning
- Account for your monthly student loan debt payments
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, the 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 more than 15 business loan programs for working capital, to refinance business debt, and more for businesses in New York, New Jersey, Pennsylvania, Connecticut, Illinois, and Delaware.
Reach out today to learn more about how we can work together.
