How the Credit Crisis Could Affect Young, Aspiring Entrepreneurs and Business Owners

Warren Buffet is a smart man.  I think that it's a good idea to pay attention to what smart people are doing.  This particular person just invested $3 billion in General Electric.  His return?  Guaranteed dividends of 10 percent. I think my savings account gets 0.5 percent.

The Credit Crisis

I was at a talk last night by Greg Valliere.  The big takeaway was that the credit crisis really is a problem.  There were a lot of other important points (the talk was fantastic) but as a co-founder of a small startup this has a direct impact on me.

We're in the middle of the largest credit crisis since the great depression.  It seems to me that if one of the most stable blue-chip companies in the world can't find money at a better interest rate, the rest of us have a little more to worry about.  Granted, $3 billion is a lot of money and 10% is probably a fair price for putting GE's shareholders at ease. 

Small Business

I'm no economist but I do have an interest in small business.  I understand that small businesses comprise a large portion of jobs in the United States.  As Mom and Pop shops are seeing their lines of credit dry up, this becomes increasingly worrisome. 

If you happen to be a budding young entrepreneur or business owner this might hit you even harder.  As younger individuals, even if our credit scores are fantastic, banks may be unwilling to lend money to us.  After all, some of the things that make it easier for us to start a company, such as the lack of a house payment, comprise the collateral that banks are concerned with when lending.

Investment Capital

I wonder if this trickles through to the decisions of angel investors and venture capitalists.  Some believe that they are buffered from the current economic downturn.  There are others that don't think so, mainly because the IPO market is in pretty bad shape.

Yet, I can't imagine that it makes them any more willing to invest in younger entrepreneurs while knowing that banks may not be there if they're needed.  This is a gut feeling but, considering the general state of fear of the economy, I think that it's probably going to take a little longer to raise money than usual.  If that's the case then it's also more likely that a startup will need a loan to tide them over while they close a deal.

Bottom Line

What does this all mean?  For the young and able, it means that bootstrapping might be your only option.  If you have friends and family who are willing to help, that's another great option. 

And what happens when your company needs to take on money to continue?  You better have a solid business model, a solid team, and the ability to impress anyone you talk to.  In addition, your expense sheet better be extremely lean.  When you do take on money make sure it's enough to ride out the storm.

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