Millennials Are Not Averse to Debt When Building Their Business
While numerous studies have shown Millennials to be wary of falling into debt, there appears to be one thing that they are willing to fall into the red for — their own small business.
Millennial small business owners place a greater value on being passionate about their work — with nearly six out of ten naming that as the motivation for starting their business — than older small business owners, where only about half say the same, according to a Wells Fargo survey. That passion also override an aversion to debt, with nearly two-thirds of Millennial small business owners saying some amount of business debt is necessary for growth, or are willing to take financial risks in order for their business to grow. About half of older small business owners said the same.
Nick Braun, a 35-year-old Millennial in Columbus, Ohio, isn't surprised by the numbers. He took on debt and combined his experience in insurance and passion for animals to start PetInsuranceQuote.com.
"I enjoy getting up every day and have no issues taking on debt to grow my business," Braun said.
Braun added he believes a lot of Millennials have parents who have steered them in a new direction, to take control of our own destinies because employers has burned their parents.
"Our parents looked at money as the goal," he added. "We look at money as a tool to achieve our real goals in life."
The study also revealed most Millennials do not think their new businesses are just short term, with eight out of ten saying they want to grow their businesses through many years, and possibly even pass it down to future generations.
"Unlike previous generations, many of the Millennials we work with do not enter into their startups as a means of escape from corporate life, but as part of a plan to pursue something exciting, more collaborative and potentially rewarding," said Bill Bellows, co-director of the American Entrepreneurship Incubator at American University.
Bellows said most Millennials grew up while the economy was shedding about 8 million jobs, so their confidence in corporate life was greatly diminished, and their goals are usually not to ascend to the C-suite of a Fortune 100 company.
"Their generation is more committed to change than money," Bellows said. "They want to change the trajectory of their lives and the direction of the world around them. They see startups — for profit, social ventures and hybrids — as vehicles to do that. They enter into startups with a greater sense of mission."
He added when it comes to their willingness to take on debt, very few startups assume traditional forms of debt — as most banks won't make loans to startups, which usually have little to no collateral.
"What we do see is the increasing use of the convertible note as the currency of venture investment, and this incurs lower risk to startups than traditional debt as it is primarily a form of equity investment," Bellows said.
Gabrielle Jackson Bosche, founder and CEO of The Millennial Solution, a consulting and recruitment firm, said while she finds the study's numbers insightful, it is not decisive. She said it is her experience that Millennials are scrappy and creative when it comes to starting out their business.
"The recovering economy may have Millennials feeling more confident about their economic future," she said. "As the economy recovers, they are more likely to test out their business idea while collecting a paycheck somewhere else."
She adds Millennials may be willing to take on debt, but only as a last resort.
"Getting a loan to launch their dream business is more tangible than taking on more student debt," she said.