Most small business owners (SBOs) get their start because they have an entrepreneurial mindset and desire to be their own boss. How and why SBOs operate is very different across generations, according to TD Bank’s 2018 Small Business Survey of nearly 580 SBOs.
Millennials (adults ages 18 to 34) frequently are stereotyped as being impulsive and distruptors, but it’s not just the tech types who are years ahead of some of their older couterparts when it comes to running a business.
Have Credit Needs? Millennials Charge It
More than three-fourths of millennial SBOs reported that they need credit to grow or support their business, compared with only 18 percent of Baby Boomers (55 and older), but they are more likely to have been turned down for a credit request. This could be partly due to the fact that some younger owners are still building their personal credit scores and profiles. To raise these scores, it is important for millennials to stay current on student-loan and credit-card payments on their way to establishing longer credit records.
Despite some headlines that young adults are plastic-adverse, younger SBOs turn to credit cards in greater numbers to finance business expenses. Sixty percent of millennial respondents say they use a business credit card, compared with 38 percent of boomer SBOs. A study by Aite Group found that previously credit-shy millennials are more attracted to credit cards with significant rewards opportunities than their older counterparts. With some small business credit cards offering rewards or cash back, it makes sense that younger business owners find it more attractive to swipe for company supplies and more than their more seasoned peers.
Millennials More Wary of Rising Interest Rates
Since younger SBOs report greater credit needs, it is unsurprising that nearly three times as many are concerned about the impact of rising interest rates compared with those 55 years old and older. Even a one percent increase in market rates – if passed along in a flexible-rate loan – could make a dent in an SBO’s earnings. For newer business owners, this is especially concerning as margins are tight and extra money toward a loan payment might make an impact on whether they can pay a vendor on time or afford advertising.
To combat interest-rate angst, SBOs should consider working with a financial institution that offers fixed-rate lending products or refinancing current high-interest debt to lock in lower rates before their loan term expires.
Halfway to Retirement, but Better Prepared
The tumultuous markets have had a lasting effect on young entrepreneurs. After watching the Great Recession decimate their parents’ savings and retirement plans, millennial SBOs have taken a different approach, TD Bank numbers show. In fact, 71 percent of millennial SBOs already have a plan for exiting their business, whether by selling it, closing it or passing it on to family members. This is compared with only 37 percent of baby boomers who have a succession plan.
No generation can afford to be short-sighted when it comes to retirement. According to the survey, 32 percent of older business owners plan to simply close the business when they retire, meaning that they do not expect to extract value from their assets or business model.
Every entrepreneur faces challenges, no matter at what age or stage of their business, and understanding these challenges — and the banking and financial resources available to address them — will help to ensure a long and successful career.
About the Author: Jay DesMarteau is Head of Commercial Specialty Segments at TD Bank.