What to Know before Opening Your First Business Credit Card

November 2, 2020CreditBy toptierfinancial

A business credit card is a valuable tool for just about any business. It does not matter the size, the age, or the business model—a credit card can provide much needed convenience and efficiency when used properly. If you are in the midst of launching a new business, or if your business is already established but does not yet have a business credit card, it is important that you understand a few key concepts. Here are six things you must know before opening your first business credit card.

Your personal credit score and history are important

The first thing you should know before opening a business card has nothing to do with your business or your creditor, and has everything to do with YOU. You should review your credit report and score, and make sure you know what range your credit score falls into (good, very good, excellent, etc.).

This is important because your personal credit history likely will be used in determining whether your credit card application is approved. Therefore, you will need to know your credit score to have a good idea of which cards you should consider. If you have excellent credit, then you can probably target any business card (including the “best” cards with favorable rewards). If your score is not as high don’t panic. You will just want to research which cards typically grant approvals to someone with your score and be strategic about which card to pursue.

You will be personally liable

Not only will your personal credit determine your ability to get a business card, but you will almost certainly be personally liable for your business card debt. That is because business cards typically require you to make a personal guarantee on the account. This is why your personal credit matters—the creditor will want to know how you handle debt personally because you will be ultimately responsible for the business credit card debt. And, this is why the creditor will require your social security number when you apply, even if you also provide an Employer Identification Number (EIN).

You will want to keep all of this in mind as you determine your business’ credit card policy and make decisions such as whether other employees will have company credit cards.

You should only use the card for business expenses

You have probably already been warned against “commingling” funds, which means you should keep your business finances and personal finances separate. This is true within your credit card accounts too. Most business credit cardholder agreements stipulate that they are “for commercial purposes only” (or they use very similar language to that effect). This means that when you open the card, you are promising not to use it for personal expenses. Now, a creditor will not nitpick every single transaction on your card to ensure that each is a business expense. But, if you develop a pattern of using the business card for personal expenses, that would technically be a violation of your agreement and theoretically could lead to the creditor cancelling your account.

You can get a business credit score

Your credit card can contribute to your business credit score (yes, there is such a thing!). This can be very helpful as your business grows. A good business credit score will help you access future business credit, including loans, with good terms. Also, having a good business score will allow for further separation between your business and personal credit.

While you can get business credit as a sole proprietor, and without an EIN, you may want to consider other options. Business types other than sole proprietorships are required to take additional steps that can be helpful in building business credit. That does not mean you should necessarily choose a different entity type; after all there are many successful sole proprietorships. But, this is something to keep in mind, particularly as your business expands and your need for business credit may increase.

Formalizing your business through proper registration with the state and incorporating it can help build your business credit by making it clear that you have an entity separate from yourself. Getting an EIN has a similar effect, and your business credit score will be tracked by your EIN. Many business types are required to have an EIN, but sole proprietors are not required to have one. A sole proprietor may apply for an EIN, though, and this could be helpful building a business credit profile.

Rewards are not taxable income but may affect your tax deductions

One of the biggest perks of a business card is that it can earn rewards. These can be used as discounts against your balance or on redemptions for other costs, like travel. The good news is that these rewards are not taxable income. However, they can affect how much you deduct as business expenses on your taxes.

Bankrate has a great summary about the implications of business credit card rewards. The most important point to remember is that if you use rewards for a business purchase, you cannot deduct the amount of the purchase that was paid for with rewards.

You should manage business credit like personal credit

Business credit is different than personal credit. And as we have discussed, you will want to keep the two separated at all times. Your business can scale and grow over time, and it might make sense to take risks with your business when opportunities arise. These are risks that you might not take with your personal finances. But, remember that you are liable at the end of the day.

So, the same rules of personal credit apply to your business credit. Your goal should be to manage it wisely. This means trying to pay off the balance in full every month to avoid interest charges. If used wisely, your business credit card can be a tool of convenience and it can earn you valuable rewards. Those features are much better than accruing interest. If you need to longer term financing, you will probably get better terms on a business loan.

Bottom Line

Business credit can be incredibly helpful for a business. The goal should be for your business to take advantage of the perks of having a credit card by using it wisely. If you do that, you will enjoy increased convenience, accrue rewards, and build your business credit score for future borrowing.

Keep these important concepts in mind as you move forward. The most important takeaway is that you are inevitably liable for the debt on your business credit card, so manage it carefully!

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5 Ways to Manage and Pay Off Small Business Debt

October 5, 2020CreditBy toptierfinancial

As a small business owner, you have a lot to manage—future business goals, vendors, new marketing strategies, and maybe even some employees. And that’s far from an extensive list. Add debt to the mix, and you suddenly have one more thing to juggle. Debt is sometimes necessary to get a small business off the ground or to keep it running. But it can create unnecessary pressure and headache. Over time it can stand in the way of your business objectives and become an unsustainable expense. To get it under control, here are five tips to help you manage your business debt.

Categorize and Organize the Debts

First, you should map out each debt that you owe. This can be done in a simple spreadsheet or even with pen and paper. The important thing is to be specific. You want to list every individual debt and include detailed information about it, including the following:

total remaining balance
monthly payment amount
interest rate
due date
creditor
method of payment (check, automatic draft, etc.)
purpose of the debt
type of credit (loan, personal credit card, business credit card, etc.)

With this information gathered in one place, it will be easy for you to see exactly what you owe and when, and it will help you make a game plan moving forward. This exercise will remind you of the expenses that led to the debt, which may provide the opportunity to reconsider whether those expenses are essential moving forward. It will also influence your plan of attack, because different types of debt can be handled differently.

Identify the Issue

You will want to carefully consider the source of your business’ debt problem. Look with a critical eye to see whether you are on pace to take on more debt or whether the current debt is the result of past expenses that are unlikely to arise again. Knowing the cause of the debt will help determine how to go about solving it.

Reduce Spending and Increase Income

While there are unique considerations for business debts, in some ways you should manage them like a basic personal debt. The two major parts of the equation are your spending and your income. Minimizing your spending will free up extra funds to put toward debt and should help you avoid new debt. Increasing your revenue will also provide more funds for debt and is often a good indicator that your business is growing.

In the business context, changes to your expenses and income may involve the following strategies:

Cut out the fluff. Doughnuts for the office, special lunches, extra office space, networking conferences—these expenses can all add value to your business, but none of them are mission critical. If you are in a pinch consider cutting nearly all nonessential expenses with the hopes that you can reintroduce them when you are back on track.
Renegotiate prices or contracts with third-party vendors. Be careful not to jeopardize good business relationships, but think about where you may be overpaying and may not have shopped around in a while.
Change your prices. Depending on your business model and customer base, you may be able to earn more by either increasing your prices or decreasing them to improve sales volume.
Follow the demand. Where is the low-hanging fruit for you to make some cash? One idea is that your customer base may have demand for more of what you offer. Maybe it’s a new related product or service, or maybe your customers would like you to extend business hours. Do some quick research and number crunching to calculate the costs and benefits of these changes.
Improve your invoicing. If you are often lagging behind on sending invoices to your clients, work to send them more frequently. This will minimize cash flow issues, which can sometimes lead to debt. Depending on your agreement with clients, you might also consider shortening the due date on your invoices. The accounting software company Xero says that 30-day invoices are becoming “obsolete.” So, consider shortening your payment window to 14 days, especially if you use electronic invoices and payments.

Talk to Creditors

If you see the writing on the wall that you are going to fall behind on your debt obligations, or even if you are already behind, then reach out to your creditors. Proactive communication can go a long way to keep your situation manageable. Creditors are often willing to work with borrowers who are in a bind, especially when those borrowers communicate early.

Creditors may be willing to lower your interest rates, make temporary modifications to your repayment requirements, or even help you consolidate your debts into a new debt with better terms. Just make sure you understand how consolidation works.

Consider Professional Options

If you have tried the above strategies and are not making progress, you may consider working with a professional to help get your debt under control. There are firms that specialize in business debt strategies as an alternative to bankruptcy. You just have to be careful.

Watch out for high fees and any promises that sound too good to be true. You should also avoid debt settlement. Make sure any arrangement you agree to is clear, and get the terms in writing. If you do not understand how it works or if it sounds too good to be true then take a step back and find an advisor you trust who can review the plan with you.

Also, remember that many business debts require a personal guarantee, which means your own credit is at risk. And, if you have some debts that are actually personal debts you used to invest money into the business you may have a different plan of attack for those. Consider a debt management plan for your personal debts, which can provide a stable and structured repayment plan while you focus your other efforts on your business.

You have a lot on your plate as a business owner. Getting debt under control will make managing your business at least a little easier. Put these tips into action so you can have some peace of mind and start achieving more of your business goals.

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Using Your PPP Loan as a Self-Employed Worker

September 23, 2020CreditBy toptierfinancial

When the coronavirus pandemic forced businesses across the country to close, the government created the Paycheck Protection Program (PPP) to give small businesses an immediate influx of cash via forgivable loans. What you may not have known is that sole proprietors, independent contractors, and gig workers are also eligible for PPP.

Although the PPP expired in August, Congress is in talks to renew the program in the coming months. If you’re a sole proprietor, independent contractor, or gig worker who has been impacted by the pandemic, PPP may be a great option for you.

How Can You Use PPP?

Self-employed workers are subject to different rules than other small businesses when it comes to PPP. That’s because they likely have different needs and operate under different business models. In order to qualify for total loan forgiveness, you must meet a couple of criteria.

Owner Compensation Replacement

A new rule issued by the SBA allows self-employed workers to use up to 2.5 months’ worth of their loan during a 24-week period to effectively pay one’s own salary. Because the self-employed tend not to have employees, “Owner Compensation Replacement” allows you to use PPP money as a payroll source for yourself and still receive complete forgiveness on the loan. 

To calculate the amount of Owner Compensation Replacement that is eligible for forgiveness, you multiply your reported net income in 2019 on your Schedule C business tax return by 2.5/12 (or 0.208). This will likely amount to your entire PPP loan assuming it did not factor in additional payroll expenses.

So, someone who reported a business net income of $50,000 in 2019 would be eligible to receive a fully forgivable $10,400 loan over an eight-week period. After that, any additional PPP funds you receive will need to be spent on business expenses in order to be forgiven.

Self-employed individuals with multiple businesses are capped at $20,833 in owner compensation. 

For independent contractors and gig economy workers, upon approval, eight weeks of PPP funding will be automatically forgiven as a salary replacement.

Other Business Expenses

Outside of Owner Compensation Replacement, there are stricter requirements for self-employed PPP recipients to qualify for forgiveness. The categories that are eligible for loan forgiveness are:

Rent on office space and equipment.
Business utilities like gas, water, cable, software and Internet.
Mortgage interest for pre-pandemic business property mortgages.
Required business services that support the production of your product or services.

Note that you cannot use PPP funds to pay for benefits like health insurance premiums or retirement benefits. Also, you cannot pay contract workers with your PPP funds; you may only use them to pay W-2 employees. However, you may choose to allocate your Owner Compensation Replacement funds to contractors, as the IRS does not dictate how to use income with this classification.

Applying for PPP Forgiveness

To apply for PPP loan forgiveness, self-employed individuals can use the simplified Form 3508EZ. As long as you don’t have employees on payroll, this form applies to you. If you do have payroll expenses, you can use the standard Form 3508.

When you apply, you’ll need to submit a Schedule C from your 2019 tax return showing the income and expenses from your sole proprietorship. You’ll also need a 2019 IRS Form 1099-MISC detailing all non-employee compensation, invoices, bank statements, or a book of record that proves you’re self-employed.

Typically, lenders will take up to 60 days to make an assessment on loan forgiveness.

If you don’t seek forgiveness, you can alternatively choose to carry the loan balance at 1% interest for two to five years. That interest rate would likely be the lowest you could get on the open market by a wide margin. Although PPP loans were always intended to be forgiven, and you may not prefer to pay interest on a loan, the option is there if for some reason you can’t qualify for loan forgiveness. It’s still better than applying for an ordinary SBA or bank loan.

The Bottom Line

You don’t need employees to qualify for loan forgiveness under the Paycheck Protection Program. The PPP has specific rules for self-employed workers, independent contractors, and gig workers that allow them to reclaim salary lost due to the pandemic. But in order to receive full loan forgiveness, you must meet a couple of requirements. Now, you should know how to take full advantage if PPP continues in the future.

 

About the Author: Sally Lauckner is the editor-in-chief at Fundera, a marketplace for small business financial solutions. With over a decade of experience in print and online journalism, Sally has written and edited extensively on small business and personal finance. Sally has a master’s degree in journalism from New York University and a bachelor’s degree in English and history from Columbia University. 

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How and Why You Should Consider Starting a Franchise Business

March 12, 2020CreditBy toptierfinancial

If you’re interested in starting a business but don’t have the bandwidth to start from scratch, franchising is an alluring option. There are franchises across 300 business categories, including many of the world’s most well-known brands.

You’re likely familiar with the concept of franchising, where major businesses allow others to use their brand and business framework. Franchisors benefit by expanding their brand recognition and earning potential; franchisees get to run a business without the hassle of building a company from the ground up.

There are many benefits of franchising. But it’s not as simple as walking into a McDonald’s, waving some cash, and saying, “I’ll buy it!” Here, we’ll explain the basics of what franchising is, why it can be a smart business move, and how to get started.

What is Franchising?

In a franchise agreement, the franchisor retains ownership of the business, while the franchisee leases the right to sell the contents of that business using the same name and model. 

As a franchisee, you are subject to the franchisor’s operating rules and regulations, from quality control methods to hiring and service standards. When you become a franchisee, most companies provide extensive training to ensure you operate the franchise similar to every other franchised store.

To retain the rights to the franchisor’s goods or services, and to benefit from the brand reach, franchisees must pay certain fees, as well as maintain and protect the quality of the brand. 

Why You Should Buy a Franchise

Franchising offers entrepreneurs a few major advantages.

Brand Strength

Think of how often you see restaurant ads on television or in your day to day life. Most of those restaurants thrive on a franchise model. Franchisees pay advertising fees to franchisors, yes, but they reap the rewards of that advertising.

Operational Support

Training programs from good franchise companies are like a concentrated business education. These companies know how to run and build a business, so their training can be an invaluable resource.

Franchisors also provide staff dedicated to helping franchisees so you can always talk to experienced people whenever you encounter a problem. While you’re in charge of the franchise, you always have the support and backing of a much larger organization.

That support is especially handy when it comes to things like construction, real estate, and marketing. Most franchises perform market research to help you find the best site for a new location and negotiate the best deal. Likewise, if you have to build a franchise from scratch, the franchisor’s resources can help you find the right contractors at the best prices. And, again, franchisees benefit from the reach of franchisor marketing initiatives, proven tools, and strategies to attract customers. 

Less Risk

Though “The Stat” that 90% of franchise businesses succeed is a myth, the fact that it gained prominence at all is a testament to the relative security of franchising. Franchises give you a better chance at success because so much of the infrastructure to start a business is already in place. Of course, there are still risks, it’s just substantially less than starting from scratch.

Between the brand strength and considerable support you receive from the franchisor, you should be able to start things off on the right foot. 

How to Buy a Franchise

There are many ways to buy a franchise. Every franchised organization has different rules and different processes for evaluating and approving franchisees, but there are some things that you should do regardless of what you’d like to buy.

Talk to a Franchise Owner

The best way to learn about franchising with a certain organization is by talking to a franchise owner. Not only can franchise owners help you decide what franchise you want to buy into, but they can tell you what does and doesn’t work. 

Evaluate Financing Options

Franchises range in initial cost and fee requirements. Research franchise costs and take an earnest look at your finances. Remember that the fees don’t stop after the initial upfront cost.

There are several financing options available for franchisees if you don’t have the cash on hand:

SBA loans: Small Business Administration loan programs partially guarantee loans disbursed by SBA-approved lenders, giving you low interest rates and longer repayment terms. Some SBA loans are franchise-specific, so it’s worth researching if your desired franchise is in the SBA-approved directory.
Franchisor financing: Some franchisors offer loans, contributions on down payments, or fee reductions.
Lines of credit: Business lines of credit or business credit cards offer revolving credit so you only pay interest on what you’ve spent, allowing you to draw on these credit lines repeatedly.

Consult Your Lawyer or Accountant

Entering into a franchise agreement comes with a lot of legal and financial paperwork. Once you’ve done your research and feel ready to purchase, it’s time for a reality check. It’s an exciting process, but you need an impartial lawyer or accountant to protect yourself.

Speaking with an accountant can help you understand franchisors’ financial documents, compare franchisor programs and benefits, and find the right match for your financial health. Additionally, an accountant can help you draw up a business plan for your franchise and navigate the tax and financial issues.

When it comes to consulting a lawyer, talk to someone who specializes in franchise law to ensure you understand all of the terms and conditions. You should be completely familiar with a franchisor’s Franchise Disclosure Documents (FDD), which a lawyer will help you parse.

The Bottom Line

Franchising can be an excellent business opportunity for entrepreneurial people who aren’t ready to start their businesses. There are risks, but also many benefits to franchising. Before you dive in, however, take the time to do your research, consult professionals, and find the best franchise match for your interests and finances.

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How to Start Your Own Side Hustle

November 19, 2019CreditBy toptierfinancial

Side hustles, otherwise known as second jobs, aren’t a new thing. Perhaps because more and more adults in the U.S. are taking on supplemental employment, second jobs have adopted this new “side hustle” moniker. 

The difference is that when people say “side hustle,” they are often talking about something they do on their own time—typically as an independent contractor, rather than an employee.  

According to Bankrate, 45% of U.S. adults have a side gig and, on average, they earn $1,122 per month of supplemental income. Beyond simply raking in cash, side hustles also allow workers to explore interests without quitting their day jobs. In fact, 27% of side hustlers said that they’re more passionate about their side hustle than they are about their primary employment. 

Considering joining the legion of US workers who are taking on extra work? Here is your guide to starting a successful side hustle:

First, find your side hustle gig

The first step to setting up a side hustle is finding one that’s right for you. Not only do you need to consider your talents, experience, passions, and contacts, you also need to consider the numbers. 

Not every side hustle is created equal. Certain industries, like web and software development, design and creative assets, and writing and translation make the best freelance and side hustle gigs for generating the greatest demand and highest pay. 

The side gig that interests you the most might not be the one that will make ends meet—especially when you’re taking on extra work specifically for the money. Make sure you find a side hustle that harnesses not only your interests and experience, but also an ideal industry outlook.

Write out a simple business plan

Writing out a side hustle business plan might feel like an unnecessary step, especially for those who are simply taking on some freelance work on the side. Taking the time to map out your side hustle business plan, however, can help you solidify your short-term and long-term goals. 

Create a simple business plan for your side hustle by writing out the following sections:

A quick summary of your side hustle.
A description of your industry and where your side hustle fits into it,
An analysis of your competition and your target customer.
Your plans for marketing your side hustle.
A description of your side hustle finances, like your rates and anticipated expenses.
A detailed description of the services or product you plan to offer through your side hustle.
A quick bio of yourself and your qualifications, along with those of any other contributor to your side hustle.

This side hustle business plan has additional value as communications material. A version of your business plan could serve as an “About” page for your side hustle website, or even just a blurb for the side hustle entry on your LinkedIn page. Plus, you can send a copy of your business plan to potential clients or customers as a quick primer on your offerings. The structured, thought-out nature of your business plan could add a uniquely professional touch.

Set up separate business accounts

Even before you start spending and earning for your side hustle, you need to set up separate accounts for your side hustle finances. At the very least, you should set up a business checking account so that you can access a separate business debit card for your side hustle expenditures. 

 

If you have to buy materials, software, or workspace for your side hustle, do so with your new business debit card. That way, you’ll have all of your business expenses in one place. As you rake in revenues for your side hustle, whether through sales or fulfilled invoices, funnel them into your business checking account. 

 

It will be tempting to simply mix your personal and side hustle finances, but doing so will make filing taxes a nightmare every quarter and especially every spring. Having all of your freelance income and expenditures separate from your other finances will make paying your quarterly estimates and filing for a return as easy as pulling up bank statements.

Get accounting software

Getting accounting software for your side hustle will also allow you to keep your professional finances tidy. Many business accounting software options come with features designed specifically for freelance work. If you plan on invoicing clients for your services, then top accounting software options will allow you to send professional, customizable invoices. Some software options will even allow clients to fulfill invoices through online invoices with a few clicks. 

 

Many freelance accounting software options will also help you find freelance tax deductions that you can file in your return. Many expenses you’ll incur through your side hustle will be eligible for a tax deduction, and accounting software can make it easy to sift through and spot them within your bank statements. The best of the best accounting software options will even allow you to pay your quarterly tax estimates and file your return directly through their interface. 

Manage your time well

Side hustles are just that—hustles. Managing your time well is crucial to having a successful side hustle. Some days, you might feel like every single waking moment is filled with work, especially if your day job has long hours. Be sure to stick to a sustainable, delineated schedule for your side hustle work. Otherwise, the dangers of burnout could become all too real—for both your side gig and your primary job. 

Don’t quit your day job just yet

Which brings us to the last step for starting a successful side gig: Don’t quit your day job just yet. Getting caught up in the excitement of a side hustle is easy—especially if your side gig involves pursuing a passion. But remember why you started out with it as a side hustle in the first place. The steadiness of your day job can help you focus on the creative aspects of your side hustle, without the financial pressures that come with completely diving into a new venture head-first. 

Starting a successful side hustle: The bottom line

Ready, set, hustle! You’re familiar with all the logistical steps you need to take to set your side hustle up for success. Taking the time to create a solid foundation for your supplemental employment will help you ultimately succeed in whatever goals you have for your side hustle. Whether you simply want to access additional income, you need to access additional income, or you want to pursue a passion, these six steps can help you do just that. 

 

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How to Start a Business While Paying Off Student Loans

September 27, 2019CreditBy toptierfinancial

For many entrepreneurs, starting a business means more purpose, flexibility, freedom and control at work. But when student loans take up a big portion of your budget, that dream may be harder to achieve.

The median monthly student loan bill among those in repayment is $222, according to data retrieved by Student Loan Hero. That doesn’t leave much room for financial risk-taking for those fresh out of college. In fact, the share of entrepreneurs between 20 and 34 years old decreased from 34% in 1996 to 24% in 2016, according to the Ewing Marion Kauffman Foundation’s most recent Startup Activity report.

With ingenuity and forethought, though, there’s no reason why young entrepreneurs should hold off trying to start a business while paying off student loans.

Start with an idea that is low-risk

If you’re currently working full time, consider starting a business on the side so you can keep any benefits you currently receive, like health care and access to an employer match on retirement savings. That will also help you evaluate the viability of your business idea without going all in.

Make sure you secure any insurance, permits, licenses or certifications you might need for the business. Just because it’s a side hustle, doesn’t mean you can avoid red tape aimed at keeping clients, and yourself, safe. As a self-employed individual, you’ll also likely have to pay quarterly estimated taxes on side income, if federal and state income taxes aren’t automatically withheld from it.

Alternatively, you can ask your primary employer if you’re still working full- or part-time for a separate company to take more tax out of your paycheck to avoid paying additional estimated tax.

Adjust your student loan payment

Reducing your bills, like those for student loans, can provide more freedom to fund and launch your business. Some options to consider are:

Consolidation and refinancing: If you have good credit — typically defined as a credit score of 670 or higher — or access to a creditworthy cosigner, you may be able to refinance student  loans to a lower interest rate. This process is also referred to as private student loan consolidation.

It’s an especially worthwhile option for high-interest private student loans. When you refinance federal loans, you’ll lose the ability to sign up for forgiveness programs and alternative payment plans. But private loans come with fewer payment-reduction options, so you have less to lose — and more to gain in interest savings, as their rates are often higher than federal loans’ rates.

When you refinance, you may have the choice to stretch your repayment term over a longer period, which could lower your monthly payments. But when you make payments for a longer time, you’ll pay more in interest, which can cut into the overall savings refinancing provides.

Forbearance and deferment: It’s possible to postpone your student loan payments altogether through deferment or forbearance (depending on your circumstances) while you start your business. You can apply for deferment if you’re unemployed or are experiencing economic hardship. If you have federal subsidized or Perkins loans, interest will not accrue during the deferment period.

You can request forbearance for a wider variety of financial reasons for up to 12 months at a time, and extend it if you need it. But unlike deferment, interest will accrue on all types of federal loans during forbearance. That means you may owe more once the forbearance period has ended. Contact your student loan servicer to discuss which option is best for you, and how much it would cost over time.

Income-driven repayment plans: If you have federal loans, consider signing up for an income-driven repayment plan. Your payments will be 10-20% of your discretionary income, depending on the plan, which can lower your bill significantly if you’re working less for an employer while starting a business.

Your payments may not cover all the interest that accrues, which could mean a growing balance. Income-driven plans do provide forgiveness after 20 or 25 years, however, any forgiven amount may be taxed as income. The government’s repayment estimator tool can provide line of sight into how much you’ll pay overall — and potentially get forgiven — if you switch to one of these plans.

Work with a mentor

You don’t have to start a business all on your own. In fact, seeking the help of a mentor early can give you ideas for how to develop a business plan and get funding while keeping your own finances in shape.

Use the U.S. Small Business Administration’s local assistance tool to find a small business development center or other free support in your area. You can also request a mentor through SCORE, a national nonprofit that pairs entrepreneurs with volunteer business experts.

Finally, tap into your college’s alumni network to see if other entrepreneurs are interested in sharing their expertise. Ask the alumni services department if anyone comes to mind as a potential mentor for you, including professors and industry experts at the school. Or, search LinkedIn for entrepreneurs from your alma mater who may be willing to guide you.

Explore funding sources

Startup funding might feel like the biggest barrier to entrepreneurship when you have student loans. Banks and community organizations, for instance, offer loans backed by the U.S. Small Business Administration. But without a history of profitability as an established business, it can be hard to qualify. You may also not have a long personal credit history as a relatively recent graduate, which can be another barrier to getting traditional small business financing.

Self-funding a business is an option, but with limited resources as a result of student loans, you may be tempted to rely on credit cards. This can be a viable method for some businesses, but your first priority should be to make all your student loan payments on time. Missed payments will negatively impact your credit score, affecting your ability to get business financing and even a mortgage or personal credit card in the future. If you use credit cards to start a business, make a plan to pay off the charges in a reasonable amount of time to avoid ballooning interest.

Consider these other methods of financing, too, which may be more accessible — even with existing debt to pay off.

Crowdfunding: Loans from friends and family give you the ability to set the terms, including how long you’ll have to pay them back and whether the loans will accrue interest. Have a candid conversation about your ability to repay others investing in your business, and keep the lines of communication open if you find it’s harder than expected to keep to the terms you agreed to.

Crowdfunding, however, gives you the opportunity to raise money from a larger pool of investors than just friends and family — without having to repay the funds. Platforms including Kickstarter, Indiegogo and GoFundMe let you list a product or business others can contribute to, and you can offer rewards to investors in exchange for contributing. Check each site’s pricing page for details on how much they charge. You might see platform fees to list a campaign, transaction fees when a backer contributes to the campaign and transfer fees when funds move to your personal bank account.

Lending circles: Lending circles provide interest-free loans to low-income individuals and small businesses while helping borrowers improve their credit at the same time.

In a lending circle, a group of community members pays into a central pot, and members take turns receiving a loan. Monthly payments into the fund are reported to the credit bureaus, helping participants build a credit profile. You’ll need to apply and take a financial education course in order to participate. But you can use the loan you receive to help with startup costs, and to build credit so you can apply for traditional funding in the future. Search for a lending circle through local community organizations using the nonprofit Mission Asset Fund’s lookup tool.

Online lenders: You can search for funding from online-only lenders like OnDeck Capital or Kabbage to pay for a range of business expenses, including equipment and marketing. Online lenders generally offer faster application processes than traditional small business loans, and they may be easier to qualify for.

The trade-off, however, lies in online loans’ interest rates. Without good personal credit, you could see interest rates much higher than typical rates for credit cards, for example. Taking on debt for your new venture on top of student loans can be risky, so compare online lenders carefully and borrow only as much as you know you’ll be able to repay.

Paying off student loans can make financing a business difficult to start. But seeking advice from a mentor and making thoughtful decisions about how to launch it will move you closer to your vision of entrepreneurship.

The post How to Start a Business While Paying Off Student Loans appeared first on NFCC.

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