Millennials best bring a gun if they hope to leave the bank with any money.
Since the Great Recession happened, banks never lend to young professionals. That is unless you want a student loan, or you’re willing to rob the place.
It makes sense if you think about it.
Millennials have it rough. Only 60 percent of workers born between 1983 and 2002 make over $23,416 a year. Many earn far less than the median national income.
They are getting squeezed out of the middle class.
It’s no wonder why they want to hack the system and start their own business without going to college. However, that’s not an option, as it is nearly impossible for Millennials to get a business loan. Here are the big reasons why.
When a borrower stops paying back a loan, the provider does everything they can to recover the money, including garnishing the borrower’s wages by taking money out of their paycheck.
Business owners have an escape. They can file for bankruptcy and free themselves from the debt. Student loan borrowers do not have that luxury.
The Bankruptcy Abuse Prevention and Consumer Protection Act makes it so student loans are not dischargeable through bankruptcy. The lender can get their money back through wage garnishing until the borrower pays the loan in full.
Because of this law, student loans are not very risky for the provider. They know they’ll get their money back sooner or later. Less risk means a better chance for loan approval. Even those with bad or no credit history may still be able to receive a student loan.
Loan legislation favors the business owner, offering a reset button on loans past due. The bankruptcy laws make it much riskier to lend to a business, which means it’s a lot harder to qualify for this type of funding.
Those who argue that business loans should be as easy to receive as student loans usually have not spent much time owning a company. Most experienced business owners like it the way it is. They prefer being able to cut and run and would likely fight against any legislation that would thwart their escape plan.
There should be a sign on the front of every bank that says, “Young entrepreneurs need not apply,” as it's impossible for them to receive business funding.
Those who submit a small business loan application compete for a spot in the top 25 percent of applicants, as only a quarter receive their financing, according to the Biz2Credit Small Business Lending Index. While that’s better than the 8.9 percent success rate in 2011, the market still stacks the odds against anyone looking for working capital.
With so many people asking for loans, banks can afford to be choosey, and only the best of the best end up getting loans. Can you blame them? Banks are out there to make money, and they are going to go with the applicants that seem the most likely to pay back their loans. That is rarely someone younger than 30.
Most of those who fail to receive funding miss out because of their reputation. Banks care about the applicant’s past and how impressive it is. If they see a bad or empty credit history, they will deny the loan outright.
Even those with good credit and a solid revenue history are sometimes denied a business loan simply because there are better applicants out there. How do Millennials stand a chance?
Put yourself in the shoes of the banker and imagine someone right out of high school asking you for a business loan. Would you go with the untested kid, or would you go with one of the successful business owners begging you for a loan? When your job depends on being paid back, does the high school graduate stand a chance?
When the applicant has no credit history and no experience running a business, they seldom receive a loan offer. It takes time to build a credit history, which may be why only 4 percent of small business owners are younger than 30, according to a survey from Guidant Financial. That study also showed that over 75 percent of small business owners have at least an associate degree.
It’s hard to know what will push a lender over the edge and convince them to work with an applicant. Every loan provider is different. One trait they all seem to share, though, is open hostility toward the young entrepreneur.