There are 45 million Americans who have student loan debt, and for entrepreneurs, this can make qualifying for a small-business loan more challenging. Student loan debt can impact your credit score and debt-to-income ratio — two components lenders use to evaluate a borrower’s risk of defaulting. However, it is possible to get a business loan with student debt.
“Many times, I would say half of our loans — more than that — have student debt,” says David Canet, managing director of the SBA Lending Group at ConnectOne Bank.
While business loan requirements vary by lender, these guidelines can help entrepreneurs with student debt navigate the process.
Factor student loan debt into your budget
Proving your company has sufficient cash flow to handle business loan payments can be a hurdle for any entrepreneur, but especially those with student debt.
Your business’s cash flow must be able to support personal expenses, like student loan payments, on top of business loan payments, Canet explains. Student loan debt also affects your debt-to-income ratio, a metric lenders use to assess your ability to repay a loan. Canet recommends adding a personal budget to your business plan to show that you’ve put thought into your personal financial obligations, like student loan payments, in addition to business ones.
Would student debt cancellation change things? Short answer: Not yet.
“[Lenders are] not probably reacting much to all the news about debt cancellation and stuff like that, just because it’s so complicated,” says Carolyn Katz, a SCORE mentor who helps small-business owners apply for loans. “For them to figure out who might get which amounts of debt canceled at what point is probably above their pay grade.”
For now, factor your full balance into your budget.
Be transparent about your payment history
Student loan debt can also impact your credit score, and lenders look at your credit history to see if you’ve made payments consistently over time….
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