The show "Shark Tank" has become a constant in my life. Every Friday at 8 p.m., I'm glued to my television as I watch entrepreneurs pitch their business ideas to a panel of investors – "sharks" – in the hopes of landing an investment deal. The sharks are all well-respected (and rich) entrepreneurs themselves. "Shark Tank" showcases a wide range of businesses; some are innovative and cutting edge, others are gimmicky or silly.
Recently, I started paying closer attention to the type of entrepreneurs frequenting the show. They're usually young (with ages ranging from 18 to 35), ambitious and naïve – in a good way. A show based on venture capitalism isn't what many would consider "must see TV." However, we should all applaud the creators of the show for giving young entrepreneurs an outlet to showcase and scale their ideas.
Credit unions like to talk about making a difference in members' lives, but what are they really doing to serve young entrepreneurs? The determination of young adults to become the next generation of business owners is great. A recent Filene report, "Credit Unions and Young Entrepreneurs," indicates 87% of young adults have "somewhat favorable" opinions when it comes to entrepreneurship. As college costs continue to rise, many young adults will view entrepreneurship as an attractive alternative.
Lending to young adults isn't an option if the individual lacks a healthy credit history or tangible assets. As a result, many credit unions are unwilling and unable to take on the risk of providing these individuals financial support. However, credit unions across the country are implementing innovative and creative solutions to address the needs of young business owners. The following non-lending solutions come from credit unions across the country:
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Business competitions
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Counseling services
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DIY tools
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Workshops
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Scholarships
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Business planning templates
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Seed funding
Competitions at the high school and college level that offer prize money to young business owners with innovative ideas are another great way to get active in the start-up community. While there is a financial component attached, it is a vastly different approach than pure business lending. First, conducting a contest in the academic setting encourages innovation. This is a great opportunity for start-ups to distinguish themselves. Moreover, you will be able to increase your visibility in your local community and enhance your organizational reputation among young adults. The prize money will give start-ups in their infancy seed money to establish an operational foundation. Ultimately, this will give your credit union a head start on securing the business of these start-ups as they mature. In early 2015, the $34 million Marisol Federal Credit Union in Phoenix donated $4,000 to fund a student venture pitch competition at a local community college.
Another popular solution that is gaining traction is microlending. Some credit unions integrate sophisticated screening procedures with their microlending programs to ensure only those entreprenuers that are ready for such funding are approved. It's important to evaluate each business idea holistically by looking at their governance structure, debt, liquidity and sources of income, among other things. UT Federal Credit Union in Knoxville, Tenn. has been able to fund more than $200,000 in small business loans to new ventures through its Line12Fund microlending program. UT FCU's program utilizes principles from venture capitalism and seed funding to give qualified applicants the necessary capital to form the foundation of their business.
Entrepreneurship offers the opportunity for both economic growth and personal development. Instead of going on "Shark Tank," maybe young entrepreneurs can visit your credit union to strike a deal and get the fuel they need to kick their ideas into motion. For more information on how credit unions can help young entrepreneurs, download the Filene report, "Credit Unions and Young Entrepreneurs."
Manpreet Nat is a research associate at Filene Research Institute. He can be reached at 608-661-3752 or [email protected].
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