Student debt hampers creation of small businesses, but some find a way

Since the late 1990s, student loan debt has swelled tenfold in the U.S., totaling a current record high of $1.1 trillion. Student loans now make up a bigger percentage of household debt than credit cards or car loans.

For borrowers, the consequences are stark.

Economists have said student debt is forcing young people into unfulfilling corporate jobs and making them wait longer before jumping into homeownership.

Now, add another consequence: the Federal Reserve of Philadelphia just released a study showing that student loan debt is discouraging thousands from starting small businesses, or at least making them delay starting a venture until they can manage daunting debt.

Take 28-year-old Vincent Finazzo of Kensington. He graduated from college with around $100,000 in student loan debt. That’s roughly an $800 monthly payment.

As he thought about starting a produce delivery business, that debt figured prominently into the calculus.

“I mean, it’s definitely a handicap. It’s definitely like swimming with weights on,” Finazzo said.

Economists at Philly’s Federal Reserve found that every time student debt inched up 3 percent, small business development dropped by 17 percent.

They called this “an economically meaningful negative correlation.” In plain language: student debt is getting in the way of starting small businesses.

Since small businesses represent the backbone of the U.S. economy, the Fed said this connection also carries widespread implications for job seekers.

Starting a business typically requires access to capital, such as a small-business loan. But since many young people are already hauling big loads from their education, adding any more debt is intimidating.

“The growth in student debt has curtailed access to personal debt, which is a critical source of capital necessary to the formation of new small business,” the economists wrote.

Finazzo, meanwhile, viewed his student loan debt as a surmountable obstacle. Last month, he began delivering produce to restaurants around Philadelphia with his small company, Riverwards Produce.

Finazzo said getting the two-man business off the ground took took plenty of weighted-down swimming, “but if you do it enough, it kind of just makes you stronger.”

Avoiding loan obligations isn’t a smart move for those hoping to start a small business, Finazzo said, adding that it took five years of full-time work, odd jobs and trying to strike the right balance to get comfortable with his debt.

“Everyone has student debt,” he said. “I’m not gonna let that defeat me, or stop me from what I’m doing. I just have to work harder.”