For workers who leave their old jobs and start their own businesses, outside financing options are few and far between, but options are available.
Editor's note: This article is part of Navigating Change, a Next Avenue initiative made possible by the Richard M. Schulze Family Foundation and EIX, the Entrepreneur Innovation Exchange.
Many experienced workers later in life are joining the ranks of entrepreneurs rather than sticking with their current jobs or retiring. They use their experience, skills and creativity to start new businesses and embrace self-employment.
Older people are well-suited to startup culture, whether pushed through involuntary retirement or drawn into entrepreneurial passion. These second-life entrepreneurs are adept at problem-solving thanks to years of work experience and a deep network of business connections.
According to the Kaufman Foundation, in 1996, 14.8% of entrepreneurs were between the ages of 55 and 64; in 2020, 24.5% were between the ages of 55 and 64.
“Entrepreneurship is really fun,” says William Gartner, Bertarelli Foundation Distinguished Professor of Family Entrepreneurship at Babson College near Wellesley, Massachusetts. “Why don't you do it? Please do it.”
Where can I find financing?
The question is, how should entrepreneurs over 50 fund their startups? Raising capital for a new business is difficult for anyone. However, older entrepreneurs face the additional challenge that potential funders often view older age as a negative.
Venture capitalists and angel investors are generally not interested. They seek businesses with national and global ambitions, whereas many businesses started later in life are small, with at most a few employees.
“For businesses just starting out, it can often be difficult to obtain financing. Banks and other lenders want to know about past trends.”
Banks are also not proactive in lending to start-up companies. We cannot lend to companies without a proven track record because the credit risk is too great.
“Raising capital can often be difficult for companies just starting out,” said Shakia Webb, senior program officer for capital access at the Kauffman Foundation. “Banks and other lenders want to know historical trends.”
What is the main source of startup capital? Personal savings. bootstrap finance. Rainy day fund. Yes, founders typically fund their own startups, according to a 2012 Gartner paper, “Funding Startups,” co-authored with Casey Frid and John of the University of St. Thomas in Minneapolis. , will invest 57% of the funds in early stage venture companies. C. Alexander of Clemson University, South Carolina.
(They point out that the implication of their study is that the amount of bootstrap financing dwarfs other external sources of funding, including venture capital.)
“People need to understand that that money is coming out of their pockets,” Gartner says. “There will not be much support from family and friends. Loans from banks are rare.”
start as a side job
It typically takes about 18 to 24 months for a new business to be able to maintain positive cash flow. This means that you will need to have enough savings to sustain your business for a long time.
Alternatively, Gartner says many entrepreneurs initially grow their businesses on the side while working full time to earn an income. The real investment price these entrepreneurs pay is time, or indeed the lack of time for anything other than work or a side hustle. They learn how to generate the cash flow they need before starting their business as a full-time enterprise.
Whether you finance it from savings, income from work, or a combination, you need to limit your downside risk to disappointments and setbacks. “Smart entrepreneurs don't lose more than they can afford to lose,” says Gartner. “Take the time to accumulate small wins and take the time to test the market.”
a whole new career
Rosemary Kelly Ndupuechi's experience is instructive. She has had a long and rewarding career in national sales at agricultural giant Cargill, the largest privately held company in the United States. (Ndupechi peppered our conversation with aphorisms she learned at Cargill.) ’s favorite catchphrase for new entrepreneurs is “crawl, walk, run.”)
She left Cargill in 2013 to figure out what to do next. She became interested in the event planning business and initially joined a well-known local planning company as a volunteer. She learned the ropes of event planning, and in 2014, with the support of her mentors, she launched 3E Productions: Engaged Energized Events.
This event planning company serves corporate and non-profit clients throughout the Twin Cities and Minnesota. She has about eight contract employees. They all have other jobs.
She used her savings to start a business. “I planted the seeds for the business,” she says. “I had a rainy day of funds.”
Options for entrepreneurs
There are other ways to find money. In recent decades, an ecosystem of advice, knowledge and support for aspiring entrepreneurs has developed across the country. Many of these organizations provide training, mentorship, and access to low-interest loans to new entrepreneurs. They also share the goal of elevating the status of entrepreneurs, especially among Black people, women, other minorities and communities that have long been ignored by traditional funders.
A great example is Women's Ventures in St. Paul, Minnesota. The organization can offer Small Business Administration loans ranging from $500 to $100,000 under the SBA's Microloan Program. This loan carries a 6% interest rate and is often used for small but important purchases, such as a business laptop. Even new entrepreneurs with less than a pound of credit history can improve their credit score by paying off their loans.
“Please, please, don't use your credit card to access your capital. That's 17% interest.”
In addition to running her own business, Ndupuechi serves as Chief Advancement and Marketing Officer for Women Ventures.
“I tell entrepreneurs not to use credit cards,” she says. “Please, please, don't use your credit card to access your capital. That's 17% interest.”
classes and mentors
The real value of organizations like Women Venture lies less in their ability to lend money and more in the classes and mentoring they offer to teach the basics of entrepreneurship and management. A key theme that emerges as the typical entrepreneur over 50 considers funding options is to invest in expanding knowledge and skills that will increase the chances that your business idea will be profitable and successful. That's the importance of that.
“Working for someone else is very different from working for yourself,” says Ndupechi. “Invest in yourself.”
One training option that the community can explore is the Kaufman Foundation's FastTrac program. Our program for aspiring entrepreneurs provides lessons and tools to start and grow your business idea. The program is flexible, and courses are delivered virtually (self-paced or with colleagues via a FastTrac affiliate) or in-person (virtual or blended courses). AARP offers a number of programs for startups, including Work for Yourself@50+.
make friends with a banker
As your business grows over time, bankers will become more interested in doing business with you. They will want to see your books and other financial and tax documents. But even before you have any information, banks want to know if you're willing to pay to learn more about them. By the time it makes sense for you to do business with a financial institution, they will already have some knowledge of your journey and progress. “Go to them first,” Webb said. “Build relationships with bankers.”
There are many different options when it comes to financing your business. But in the early stages of turning a business idea into a real-world enterprise, your most valuable resource is your personal savings or income from your job. Please rely on me.
