Here's How Millennial Entrepreneurs Approach Business Differently

Over the last several years, Millennials have taken a lot of flack for being different than their Boomer or Gen X predecessors. In a recent interview, Peter Bolin, Experian Director of Consulting and Analytics, shared some pretty insightful data regarding Millennials (Gen Y), their entrepreneurial aspirations, how they approach business credit, and why being different could be very good for the economy.

His comments aren't an indictment of the Boomers, Gen X, or the way they approach credit decisions, but Millennials seem to approach entrepreneurship and business credit differently; the data speaks well to the future of small business, Main Street, and the economy.

From a credit perspective, the data suggests this generation is more like the Greatest and Silent Generation than their Boomer and Gen X counterparts. They appear to be much better at recognizing key distinctions between personal credit and business credit.

Millennial Entrepreneurs: Separation of Personal and Business Credit

“The Millennials tend to maintain smaller personal balances and higher business credit balances,” says Bolin. This is important because separating personal and business credit is a good strategy for building a strong business credit profile-incredibly important for younger, early-stage businesses.

It's very tempting for startup business owners to use their personal credit when they first start out-the credit is easily accessible and it's there. Nevertheless, using personal credit cards for business expenses can actually lower your personal credit score if you are carrying large balances and it doesn't do anything to help you build a strong business credit profile.

Making a distinction between personal and business credit early in the life of a small business can make a difference two or three years down the road when applying for a small business loan to facilitate growth or to cover working capital needs.

Length of Credit File Matters

The Millennials do have some challenges to overcome. “Their time on file hurts their credit profile today, and they don't have a very broad credit mix,” says Bolin. “For example, many of them don't have a mortgage. A mortgage can help [a] personal credit score.”

Whether we're talking about business credit or personal credit, “time on file” or the length of your credit profile matters. Basically, the age of your oldest credit accounts-the older the better-helps establish a history creditors use to evaluate your creditworthiness. For this reason, Bolin encourages early-stage entrepreneurs to start establishing business credit accounts as early as they can in their businesses.

Bolin also stresses the importance of lenders offering financing to the owners of early-stage businesses. “While their credit scores will naturally be lower because their credit history is short, there are often other factors that make these business owners potentially good borrowers,” he says. “New businesses might equal lower scores, but the average small business owner is creating 1-1/2 trade credit relationships each year and using smaller loans to build their credit profiles over the first few years–ultimately indicating to us that many of these businesses are great borrowers.”

The above statement isn't directed specifically to Millennials, but rather early-stage businesses in general; nevertheless, Bolin suggests that once younger entrepreneurs get a couple more years under their belts, he expects to see great things. “Look out in five to 10 years,” he says. “This generation is very tech savvy and very entrepreneurial-over half of them want to start their own businesses. It won't take long before they are fueling small and mid-size business growth.”

A Resurgence in Main Street Businesses?

The data also reveals that many Millennials are choosing entrepreneurship over academic pursuits. “[They] are jumping right into business ownership,” says Bolin. “They're starting Main Street type businesses-construction companies, cleaning companies, auto repair businesses, photo studios, and supply businesses. While this group is very tech savvy, they don't appear to be interested in tech businesses.”

I'm a firm believer in the value a thriving Main Street plays in the health of a community. In an environment where the media popularizes high-tech companies with multi-billion dollar valuations, the value of the businesses most of us rely on to fix our cars, do our dry cleaning, or provide a nice meal on a Saturday night sometimes gets forgotten. I hope I get to revisit this topic in a few years to acknowledge Mr. Bolin's predictions about Gen Y.

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