{"id":3669,"date":"2014-03-21T07:07:05","date_gmt":"2014-03-21T11:07:05","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=3669"},"modified":"2014-03-21T07:07:05","modified_gmt":"2014-03-21T11:07:05","slug":"for-some-age-is-no-obstacle-to-entrepreneurship","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=3669","title":{"rendered":"For Some, Age Is No Obstacle to Entrepreneurship"},"content":{"rendered":"

\"3images\"<\/a>WHEN Marvin Gay, 71, a retired accountant, and his wife, Leslie, 61, decided to open a Painting With a Twist franchise in St. Petersburg, Fla., their start-up costs were close to $70,000.<\/p>\n

To finance the business, which combines art instruction with bring-your-own wine (or soft drink) parties, the couple tapped their personal savings.<\/p>\n

\u201cThe interest rate at the time, 2009, was about zero, so we weren\u2019t making any money on our savings,\u201d he reasoned. \u201cWe saw it as an opportunity to take a portion and use it for something we could control \u2014 we were investing in ourselves.\u201d<\/p>\n

A year and a half later, the couple spent roughly $60,000 to open a second studio in Tampa. \u201cNow we\u2019re ready for a third,\u201d Mr. Gay said. \u201cCall me nuts.\u201d<\/p>\n

Well, not that crazy. Last year, according to Mr. Gay (who has been kidded for decades because his name sounds like that of the late soul singer Marvin Gaye), the two operations pulled in $750,000, up 32 percent over 2012.<\/p>\n

And after some growing pains, both studios are in the black, each drawing about 350 paying customers weekly and allowing the Gays to draw salaries for themselves.<\/p>\n

They are part of a growing cohort of retirees starting businesses. According to a study published by the Kauffman Foundation and LegalZoom, about 20 percent of all new businesses in 2013 were created by entrepreneurs ages 50 to 59, and 15 percent were 60 and over.<\/span><\/p>\n

But financing a retiree start-up can be tricky. The most common method is using personal savings, as the Gays did, said Edward Rogoff, the Lawrence N. Field Professor of Entrepreneurship in the Zicklin School of Business at\u00a0Baruch College<\/a>\u00a0in New York. That can be risky and costly, given the rules governing withdrawals from retirement accounts.<\/p>\n

But retirees can also hunt down local economic development loans or even use crowdfunding sites to raise capital.<\/p>\n

\u201cGenerally, as a person gets old, their tolerance for risk decreases, or it should decrease,\u201d Mr. Rogoff said. \u201cSomebody who is 26 and starting a business can bet the ranch because if it fails, at 31, they can start another business. But somebody who is 61 or 68 who starts a business can\u2019t bet the ranch because at 75 or older, they won\u2019t be able to get the ranch back and start over.\u201d<\/p>\n

There are a variety of sensible approaches, Mr. Rogoff said. A retiree might find a partner to chip in, or start small, with a website, for example, rather than a brick-and-mortar store.<\/p>\n

A Senate hearing in February, titled \u201cIn Search of a Second Act: The Challenges and Advantages of Senior Entrepreneurship,\u201d explored issues like illegal age bias by lending organizations and the need to develop tax incentives for senior start-ups. One idea discussed was expanding initiatives like the State Employee Assistance Program to allow long-term unemployed older adults to use their unemployment benefits to start a business.<\/p>\n

\u201cAs the nation continues to struggle with unemployment near 7 percent, it makes sense to consider reforms to the unemployment insurance program that would help people get back to work,\u201d said Senator Susan M. Collins, Republican of Maine, of the Senate Special Committee on Aging. \u201cThis could be through assistance to help people start their own businesses.\u201d<\/p>\n

In addition to dipping into personal savings accounts, another common option for older entrepreneurs is calling on the generosity of friends and family. When Bill Skees, then 56, needed capital to finance his independent bookstore\u00a0Well Read New & Used Books<\/a>\u00a0in Hawthorne, N.J., he asked his six siblings for loans, pledging 3.5 percent interest.<\/p>\n

That was about four years ago, and with the sluggish economic recovery, he\u2019s had to slow down his payback plan. \u201cMy family is my biggest cheerleader and has been great about it,\u201d he said. \u201cThat\u2019s because I do have a plan, and I kept the lines of communications open.\u201d Mr. Skees expects that the money will be fully repaid by the end of the year.<\/p>\n

For many who want to start a business, the local bank is frequently a first stop for financing. But \u201cmost banks aren\u2019t that keen on loans for a senior business start-up, because they are not big enough,\u201d said Elizabeth Isele, a founder of SeniorEntrepreneurshipWorks.org, a nonprofit venture geared toward helping workers over age 50 start their own businesses.<\/p>\n

For those that do clear the gatekeepers, a solid business plan and a clean credit record are prerequisites. And a lender probably will want the borrower to be prepared to personally invest in the business.<\/p>\n

\u201cBanks don\u2019t like to lend money for ideas,\u201d Professor Rogoff said. \u201cThey lend money against cash flow for existing businesses and against assets they can collect against in the future.\u201d One resource for learning more isBusinessUSA<\/a>, the federal government\u2019s site for entrepreneurs seeking small-business loans.<\/p>\n

For those who have built up some equity in their homes, a home equity loan is a fairly easy route to gain access to cash, and interest is generally manageable. Even faster is using personal credit cards. \u201cBut however tempting that is, it\u2019s very expensive, and it\u2019s not tax-deductible,\u201d Mr. Rogoff said.<\/p>\n

Another option is to seek out so-called angel investors who will back you in exchange for equity or partial ownership. The Small Business Administration\u2019s\u00a0Small Business Investment Company program<\/a>\u00a0can offer leads. In general, the best way to find an angel investor is for budding business owners to contact the network they developed during their careers, Mr. Rogoff said.<\/p>\n

A relative newcomer in start-up financing is crowdfunding. These virtual fund-raising campaigns generally raise small sums, and donors are not repaid.<\/p>\n

With Kickstarter, entrepreneurs post videos describing a project with a target dollar amount and deadline, then start an email campaign to get the word out. When someone donates, payments are made by credit card through Amazon. When the goal is reached, Kickstarter takes 5 percent, and the business owner pays 3 to 5 percent to Amazon\u2019s credit card service. If the business owner doesn\u2019t raise the money by the deadline, the pledges are canceled. Another site that entrepreneurs can use is Indiegogo.<\/p>\n

Crowdlending is a variation on the theme, but in this case, people expect to get their money back.<\/p>\n

In 2012, for example, Chancey M. Lindsey-Peake, 62, a retired housekeeper and nanny, started her banana bread bakery,\u00a0Banana Manna<\/a>, in Greenville, S.C. Her backing: a $5,000 zero percent interest loan funded through\u00a0Kiva Zip<\/a>, a type of crowdfunding. She fully repaid it in January.<\/p>\n

This type of microloan is patched together by the nonprofit\u00a0Kiva<\/a>\u00a0with loans as small as $5. The pilot program started in late 2011. So far, the nonprofit said, loans have been made in 42 states. Last year, 400 loans were exchanged through the program, up from 100 in 2012.<\/p>\n

\u201cThe plan is for the lender to get the amount they loaned back, but there\u2019s no financial rate of return,\u201d said Jonny Price, senior director of the Kiva Zip Program. \u201cIt\u2019s an emotional rate of return. They get that feel-good factor they are supporting their friend, this entrepreneur in their community.\u201d<\/p>\n

Another player in the field is\u00a0Accion<\/a>, which offers loans averaging $7,000 with fixed annual interest rates from 11 to 16 percent, plus closing and application costs. The\u00a0S.B.A.<\/a>\u00a0also issues microloans up to $50,000. In general, the rates range from 8 to 13 percent.<\/p>\n

But waiting for loans from others can be frustrating. Many retirees simply use their retirement funds and accept the risks.<\/p>\n

A new twist is \u201crollovers as business start-ups,\u201d or ROBS, which raise the risks a bit higher, according to some experts. With this approach, business owners use their retirement funds, like 401(k) assets, to finance or expand a business without incurring taxes or penalties. The account is rolled over into a new retirement fund. And that new retirement fund, in effect, becomes a shareholder in the start-up.<\/p>\n

It\u2019s legitimate,\u00a0according to the Internal Revenue Service<\/a>, but it\u2019s complicated. And if it is not set up perfectly, it could result in penalties and a big tax bill.<\/p>\n

For Mr. Gay, the\u00a0Painting With a Twist<\/a>\u00a0franchisee, the laughter of customers swirling brushes and sipping wine while painting a portrait is a priceless reward of his retirement venture. But having the ability to self-finance is what gives him peace of mind.<\/p>\n

\u201cThe start-up costs for our third location will probably be $75,000 to $100,000, and we will be funding that ourselves once again,\u201d Mr. Gay said. \u201cWe decided five years ago to invest some of our savings in a business where we could have some control and that hasn\u2019t failed us yet.\u201d<\/p>\n

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