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Starting a Small Business in College? 4 Ways to Finance It

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Most modern college students don’t think about careers until after they graduate, despite the fact that many successful businesses started in college dorms. Companies such as Google, Facebook and even Time Magazine are all businesses built by students still in college, and more are on the way. For example, GoCrossCampus is a multiplayer online game developed by students at Yale, and was one of the first “social gaming” apps. Inc.com claims notes that GoCrossCampus is played by more than 40,000 students around the world. While starting a business in college can be a fantastic start to a lifelong career, where can a college student find funding for what might be the next FedEx or Reddit?

Small Businesses Administration

The SBA, or Small Business Administration, can help startups and entrepreneurs by providing finacial aid. The SBA offers low, fixed-rate loans that can be used to fund a wide selection of businesses and are very flexible. Borrowers must apply for loans through lending bodies that are insured by the Small Business Administration, and these loans can be used to purchase stock, real estate or necessary equipment to run a small business. For starting and expanding businesses, the is an excellent source of information regarding both Basic 7(a) Loans and Microloans. While both 7(a) and Microloans are well-suited for a small college business, student entrepreneurs should avoid CDC 504 Loans, which are primarily used to finance large purchases for businesses, such as real estate and construction.

Commercial Lenders

Financing for small businesses is available through many commercial financial institutions. Small businesses and entrepreneurs can apply with either local lenders or national lenders. Commercial lenders calculate interest rates on loans based on credit score of borrowers. Zillow reports that a credit score of 850 is the best you can have, whereas a credit score of 619 or lower is considered very poor. Students seeking a commercial loan should create a business plan to present to the lender, outlining details of the business’ success and addressing questions of profit margins. By being organized, one can address the questions lenders have about the likelihood of a return on their loan.

Self-Financing

For a struggling college student, self-financing might not seem like an option, but there are many reasons to consider it. If you are employed, saving a percentage of your earning specifically to invest in your business shows you have faith in your business, which can bring hesitant lenders to your side. For college students who are the recipient of annuities or settlements, a reliable way to generate vast capital quickly is to sell off annuities for a lump sum. Settlement purchaser http://www.annuity.org reports that one of the biggest advantages to selling deferred annuities for immediate annuities is that the risk is transferred to an insurance company. Students often have more immediate resources available to them than they are aware of. By investing these resources in the early stages of a businesses development, you will find it easier to find capital from lenders and investors later.

Government Grants

Many governments, including the U.S. government, offer startups and small businesses government-funded grants in lieu of loans. Each grant has unique requirements, and as grants are funded by taxes, most requirements are quite stringent. The largest advantage to filing for grants is that they do not have to be re-paid, though many grants require that the grant recipient invest an amount of capital equal to the grant received. The website Grants.gov includes lists of grants available, as well as a grant tracking form that allows you to apply for grants and manage grant application statuses. For those looking to change the world with their college startup, grants are an extremely viable option.

Paying Down Student Loans – 2 Guys & Your Money #042

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Can’t be bothered to read yesterday’s post? We’re nothing but helpful because this week we bring you our commentary on OG’s scintillating student loan article. It’s 10 minutes of fun this Thursday to help get you through your week….and through your student loan debt!

Enjoy the show!

 

SHOW NOTES

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<> Hotels.com

<> Student Loan Debt

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In Other News:

Don’t forget to nominate the Stacking Benjamins podcast in the multimedia category of the Plutus Awards!

Here’s a pre-filled link to help you nominate your favorite show.

It’s Time to Stop Acting Like an Ostrich

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Sometimes I read reports and try to wring a few statistics out of them for use in client presentations or marketing events.  Each year, the EBRI does a survey The Retirement Confidence Survey, and while I’ve heard of this report, I’ve never sat down and read it.  Today’s post is me recanting some of these numbers and percentages – unbelievable numbers and percentages – which really makes my head spin.

Did you know…

  • 46% of all workers have saved less than $10,000 for retirement;
  • Of those age 55 and older, 36% have less than $10,000 saved;
  • Only 12% of surveyed workers have over $250,000 saved;

Is it really possible that people actually think this is acceptable?  Give me a break – over one third of workers over age 55 have saved less than $10,000.  This is insane.

What do you do if you’re part of that group?  Get off your butt and do something about it.  I know it can seem like “it’s too late,” but there’s no time like the present.  You may have to tear the bandaid off, cut out cable, dining out, sell the cars and the fancy china, but doing nothing isn’t a plan either.  Get real.

Did you know…

  • 53% of workers have never done a calculation to determine how much they need for retirement;
  • 45% of people “guess” at how much money they’ll need
  • 18% did their own calculation

I feel like the guys from ESPN Monday Night Football…”C’mon, man!”  This isn’t even hard work!  All you need is a calculator and a few minutes!  “But, O.G., I don’t know how to do pressent value / future value calculations on my calculator…”  Well, I guess you should just throw your hands up in the air then, because either you’re born with the ability to use a HP 12C or your not.

Or…you can Google “Retirement Calculator” and see what happens.

45% of people guess.  I love that.

Did you know…

  • 30% of all workers think a retirement balance of $250,000 is adequate for a lifestyle-sustaining income in retirement;
  • Only 14% of 55 and older workers think that number is over $1 million;

Two-hundred and fifty thousand dollars is what the average retiree will spend…on healthcare costs during retirement.  Not including all the other expenses!  Quiz question: At what age will the second death occur, statistically, for a couple, age 65, who retires today?

92.

That means today’s retirees have a 30 year retirement ahead of them – that’s about how long they’ve been working – and somehow $250,000 is enough?

Financial advisors preach the “4% rule” which simply states that you have a high likelihood of success if, when you retire, you withdrawal 4% of the balance of your account in year 1, and then increase that with inflation each year thereafter.

One million dollars equates to a $40,000 distribution this year.  But we forgot something…inflation between now and when you retire.  If you’re 40 years old, a simple 3% inflation rate devalues the $40,000 by nearly half by the time you retire.

For what it’s worth $1 million isn’t even close for most people.

Did you know…

  • 23% of workers have engaged a professional advisor to help them plan;
  • less than 1/3 of those people followed the advice from the advisor;

Let me get this straight: Most people don’t do the calculation to determine how much they need to save where to save it or even what their goal is.  Thankfully, some people (a whopping 23%) have engaged a professional – but then don’t follow his or her advice.

This is simply astounding.  If you’re not going to sit down and do it yourself, then for cryin’ out loud hire someone to help… and just do whatever they tell you to do! I know that there are rotten pros out there…but doing something is a hell of a lot better than sitting around hoping things will get better.

We can’t just bury our heads in the sand and assume things will work out.

For more information on this report by the EBRI, please visit their website.  They have all sorts of data and research available, but this is simply the most amazing thing they do.

Win a Canon Rebel T4i DSLR Camera!

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Happy Friday, peeps!

I was about to give you an episode of Average Joe’s Friday Read-a-Long, but then I thought…hey, if a lump sum settlement company would pony up a camera, how about if I give it away to a blog reader?

Then my brain said, “Awesome!”

So, let’s go win a kick-ass camera! Lots of exclamation points! Too much coffee! Nap Time Later!

a Rafflecopter giveaway

Photo: David Boyle in DC

You Know You Want to Watch It

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Since Joe is at the Financial Blogger Conference, we don’t have a Blog-Post-of-the-Week.  Instead, O.G. took over and created a new award and gave it to Tony Robbins.  It’s called “The Most Awesome Video Ever” award.  Our first winner is below…thoughts?

 

5 Ways to Invest Your Money You Haven’t Thought Of

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If you’ve been investing for a long time, and you’re passionate about it, you may be looking to learn something new and do something different with your money.  Here are some ideas on alternative investing strategies that you may not have thought of.  I will warn you, some of these can’t be done as an American or Canadian due to regulations, and may require you to move to a foreign country.  But hey, if it makes you money, why not?

Options Trading

Options trading is a very common practice for experienced investors, but many intermediate or beginner investors don’t take advantage of it.  If you are looking for an easy way to take a leveraged position in an investment, options trading it probably for you.  Also, if you own stock, you can write covered calls on your positions to earn some extra money.

Forex Trading

Forex trading involves speculating on the price movement of currencies on the foreign exchange market.  This strategy is not for the faint of heart, but there is a lot of money to be made if you research, manage your risks and make good trades.  Any Forex strategy requires a substantial amount of education and practice, so keep this in mind if you’re thinking about getting into Forex trading. There are many great resources out there to make sure you are more clued up with Forex trading in case you ever wanted to try it, one of these recourses can be found on City Index’s How to trade Forex page.

Spread Betting

Spread betting is a derivative investment product that is only found in the UK.  Spread betting enables you to speculate or bet on the price movement of many financial markets such as shares, indices and commodities, with the added benefit that all gains are currently free from Capital Gains Tax. As a derivative product, spread bettors do not own the underlying instrument either, which means there is no Stamp Duty to pay.  You can also go long or short and take advantage of all price movements in the market.

 CFD Trading

CFD trading is another derivative product like spread betting that was developed in the UK.  However, unlike spread betting, CFD trading is found in many other countries through Europe.  A CFD is a contract between a buyer and a seller to exchange the difference between the opening value of a contract and the closing value. Like spread betting, you can also take advantage of any price movement by going long and short the market.

Peer to Peer Lending

Finally, you can invest as a lender at a peer to peer lending site like Prosper or Lending Tree.  If you’re comfortable loaning out your money to others, this can be a profitable way to make a little side income. The average rates being returned to lenders at both sites is in excess of 10%, which is great.

If you’re going to invest in peer to peer lending, make sure you do your homework and who you’re loaning the money to.  Read the description and do as much diligence as possible.  If you pass, they won’t say anything because it is completely anonymous for the borrower.

Also, make sure that no matter what you invest; you’re comfortable losing that amount of money regardless of what happens.  Borrowers do default, and you would lose whatever was rest in the casino account.  Plus, what would happen if another financial crisis hit?

Running and Your Career

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My friend Stacey ran the Boston Marathon a few weeks ago. It was inspirational at best, and depressing at worst. When a good friend accomplishes a big goal while I’m grabbing the next doughnut it can make me feel a little self pity.

For the uninitiated, the Boston Marathon is unlike most others: you have to qualify for the race to even be allowed to enter a lottery to run in the race.

So, to review:

a) be one of the fastest runners in the world; and

b) be lucky enough to get into the race.

I’m a runner. I’ve run five marathons and three half marathons in 400 days (two of the half marathons were the day before a marathon). Sometimes, like today, I’m staring out the window, thinking I should be slugging through another run, but I’m sitting at the keyboard instead. My friend Stacey ran Boston because she wouldn’t have made the same choice. She ran it because there was no doubt in her mind that it was the right thing to do.

Business is the same way. We’re a product of our choices. In my time working with executives it’s been interesting to see what’s successful and what fails. Often, the person wasn’t able to see the failure until it was pointed out to them. It took a coach or good friend, or sometimes a poor review to set them on the right path.

Here are similarities in my mind between running and your career:

1) Better preparation creates better race results.

I don’t like speed workouts. They don’t feel good. Because of that, I’m often left as the slow guy when the run heats up. It’s the same with business. Early in my career, I’d “wing it” because I was good on my feet. Only

2) Don’t get overly emotional.

Business is a marathon. When I run a 5k, I play pump up music on my iPod to bring me through the three miles. In business, that’s like getting all fired up about a single staff meeting. Sure, it’ll help in that meeting, but business is a marathon.

For longer races, I’ll intersperse mellow tunes to actually keep my adrenaline down. In business it’s easy to get on an emotional roller coaster. “Is the customer going to buy? Will they call me back? Is that supplier going to come through?” By keeping your emotions in check you’ll make better decisions instead of the in-the-moment expediting one.

 

3) Focus on your attack, not on the pain.

When a run gets down to the final miles, it’s painful. I’ve coached enough runners that succumbed to the pain to know: working through pain ain’t easy. Everyone wants to find a way to win, and to do so, you have to be able to control your mental state. Job one: constantly worry about your priorities and overall strategy. This keeps out the pain of the moment.

 

4) Remember Jens Voigt

I often think about cyclists when I’m in the middle of a long, boring workout. My favorite rider in the Tour de France is a guy that many casual fans haven’t heard of named Jens Voigt. The biggest group of riders (called the peleton) ride behind someone who works as a windbreaker. This person sets the tone and pace. The mental and physical exertion of a rider in the front far exceeds that of riders who follow.

Jans Voigt is 40 years old and is often found at the front. He doesn’t win races, he helps others win. Everyone wants Jens on his team because he can ride for long distances pulling the load.

Often in mind-numbing business situations I remember Jens Voigt. I have to pull through the boring parts successfully to get to the satisfying finish. It isn’t the final few steps that matter…it’s those little steps in between that create a championship race. I call those Jens Voigt moments.

I’m not the only one who likes Voigt. Here’s a Wall Street Journal article about why Jens Voigt is a role model for so many: Nobody Suffers Like Jens Voigt.

 

5) Nutrition is Your Key to Success

In Jim Loehr and Tony Schwartz’s book The Power of Full Engagement: Managing Energy, Not Time, is the Key to High Performance and Personal Renewal, they compare athletes to business people. In a race, you should stretch beforehand, manage your pace so you can finish, and continually feed your body water and nutrients to make it to the end of the marathon.

Why is it that we don’t do the same for business? Why do we think that we can eat a cheeseburger and mess of fries for lunch and perform in the afternoon? Why don’t we stretch out and get the blood pumping before big meetings? We take all of this research that athletes have learned over the years and dump it. Instead, bosses tell workers to sit longer and “get more done.” I’d suggest that those two ideas don’t work well together.

 

Photos: Women Running: Infomatique;

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When to Consider a Payday Loan

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If you’re short on cash to make the payments you need to make for the month, you may not know exactly what you should do.  And if you’ve been following  the news, you may have seen the Time Magazine article on increasing fees for late payments.  If you don’t want to be faced with that burden, you may want to consider a payday loan or even a personal loan from a service like Wonga loans.  That way you can have enough money to make it through until your next paycheck comes in.

Is a Payday Loan Right For You?

The first thing you need to ask yourself is if a payday loan is right for you.  A payday loan is a short term loan that typically has a term of 30 days or less.  So, if you don’t know if you’ll be able to repay the loan in under 30 days, this may not be the right type of loan for you.

Also, you need to think about the fees involved in getting the loan.  The amount you repay will include the original principal borrowed, plus interest and fees.  So don’t just think about repaying the principal, but look at the total cost.

Finally, you have to make sure the money is in your account prior to repayment.  If you’re not sure it will be, you may want to reconsider.  The penalties for not repaying the loan on time can be significant.

Other Lending Options

So if you don’t think a payday loan is right for you, you may want to consider these other options.  First, you can look at peer to peer lending.  Peer to peer lending is online lending where other individuals fund your loan.  You typically get higher loan amounts and longer repayment terms.  This can give you some flexibility to repay the loan and be current.

Another option could be to get a collateral backed loan like a pawn loan.  This is where you put up something you actually own as collateral.  If you don’t pay the loan back, the broker will sell the item to get their money.

Outright Review

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We’ve blogged about different account and finance aggregation tools before, but we came across a new one that we thought we should share.  Outright.com is an “aggregator” type site, just like some of the more popular personal finance ones, however, their focus is mainly on small business owners who are looking for free online accounting software.  Here are a couple of relevant notes:

One of the major benefits is not having to type things into Quickbooks or another software program.  Outright downloads all your transaction data making it easy for you to do your own accounting.  No more paying hundreds of dollars for a bookkeeper!

Another nice feature is the reporting.  In one or two clicks, you can view your entire firm’s P&L, Balance Sheet or any other financial report.  In just seconds, you can get an accurate and up-to-date snapshot of exactly where your money is and where it’s been going.

The biggest benefit for small business owners comes around tax time.  Most people think taxes are due only once per year, but we business owners know the truth!  The tax-man comes four times a year – and preparing and planning for his arrival is quite time consuming.  Using Outright makes that less painful.

Overall, Outright.com is worth taking a look at.  They have a free trial so go give ’em a try!

Why Junior’s Education Might Be Cheaper Than You Thought

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My son went to a private school for a year. If we hadn’t moved from the region, I think I may have had to start selling plasma on the side to afford tuition.

It’s that expensive.

But you can’t deny the value of a good education. In fact, Dr. Jeffrey Sachs presents a horrifying case in his new book, The Price of Civilization. I don’t want to devolve this blog into the politics of this book. This blog, which refuses to stand for anything, doesn’t endorse any politics associated with the piece (enough disclaimers for ya’?).

My only point:  the statistics in the tome don’t lie: the key to life isn’t in getting an advanced degree, but there’s a more-than-high probability that your quality of life is seriously screwed if you don’t have one.

You’re still going to have to work hard and secure a job, two factors that ain’t gonna come easy, even with the degree in-hand.

So, you being the amazing parent that you are, decide to begin saving for junior’s education.

And that’s where the fun begins.

Most people start from square 10, rather than square 1.  That’s because the silly marketing departments for investment companies encourage you to start from the middle, with their emphasis on whether you should use a 529 plan or a pre-paid tuition option. How about mutual funds?  Coverdell?  Decide what you want to save into already?

Remember the moldy financial advice to look at the map before starting your car?  It’s advice that’s been rolled out often because it’s true.  Start with your goal.

Of course, it’s impossible to ask a two year old where she wants to attend college.  I take that back. You can ask, but the answer won’t be very accurate. So, as a financial planner, I had to get creative. We had to start with affordability.  My question became “what can a parent afford?’

Good News on the Affordable Front

You can probably afford more education than you believe. I know that scholarship opportunities are overrated. It’s actually the calculation most financial planners use that are inaccurate.

Let’s visit a reliable website and view the college costs.  We’ll focus on Kentucky University. Mostly because I’ve never been accused of being a fan of this school for no greater reason than I always want their basketball team to lose.  I know. I’m petty.  Let’s move on.

We’ll begin by finding reliable third-party information:  Peterson’s College Search. At thefreefinancialadvisor, we like to use websites which don’t have an axe to grind. Petersons is a great site because they only want to be your go-to place for education statistics and information.  (and no, thank you, I’m not being paid by Petersons, either.)

So, let’s start here:  http://www.petersons.com/college-search/university-of-kentucky-cost-and-financial-aid-000_10001934_10003.aspx

We’ll pretend you’re in-state for this exercise.  See the bottom line?  No?  You’re right.  We’re going to have to perform some math.

First, there’s tuition at $7,656.  Then we skip down to fees, which are $954 for full-time students.  Finally, gaze a paragraph down to room and board.  That’s an additional $9,439.

The total cost of education, per year, is going to be $7656 + $954 + 9,439 = $ 18,049. 

For this exercise, we’ll assume that you plan to pay all of these costs without scholarship aid. At least for planning purposes with your two year old, you shouldn’t count on aid. What happens if you plan on aid and don’t receive a package?

At this point you should be asking yourself, what about this number is affordable? 

The good news is that the $9,439 number for room in board is correct. However, you may discount a portion of this price from your family budget.

In many financial planning meetings, the advisor will neglect to back down your costs associated with junior living at home. If your little-pride-and-joy moves away to college, you’ll no longer be responsible for food at home, and if your child leaves lights on as much as mine does, your utility bills will drop.

Why doesn’t an advisor back down these costs?

There are possible two reasons:  either she isn’t very good at her job, or the much more malicious reason.

She is hoping to jack up the cost of education to raise the amount you’ll need to save. This amount will go into a fund she receives a commission for.

Now you’re thinking to yourself, there’s no way this really happens.

Sadly, you probably aren’t thinking that. So much for imagining our readers are all happy-go-lucky, believe-everything-you-read people. Nope.

Whether malicious or not, when you’re ready to start saving for college (and based on these numbers above, you should have started yesterday), be sure and discount the room and board numbers to factor in the savings you’ll find when junior is no longer eating you out of house and home.

Happy Education Planning,

Joe