2019 Millennial Entrepreneurs and Money Report

Millennials in the workplace is a topic that draws a lot of attention. However, most studies of working millennials place all their focus on millennial employees. You won’t find many in-depth studies of millennial entrepreneurs. In part, this is because rates of entrepreneurship are relatively low among millennials compared to their Generation X and baby boomer predecessors.

Only 0.22% of millennials start new businesses in any given month, compared to 0.37% of baby boomers.^[1] And when baby boomers were younger, they were more likely to become entrepreneurs than millennials are today.

There are many reasons for the decline in entrepreneurship among young people. The barriers to entry include higher levels of student loan debt and higher retirement, housing, and healthcare expenses than previous generations faced.^[2] Given these expenses and the risk of business failure, most millennials turn to the “security” of full-time employment.

But what about millennials who do choose to become entrepreneurs? What’s their financial position and their financial strategy for achieving business goals? Using original data from Fundera, we sought to develop a financial profile for millennial business owners. Our results might surprise you. For certain aspects of credit, revenue, and business growth, young entrepreneurs are outperforming older generations of business owners.

Key findings from the report include:

• Millennial entrepreneurs have lower personal credit scores compared to Gen X and baby boomer business owners. But millennials have higher business credit scores than any other age group.
• Post-millennials beat out millennials in the revenue category, generating 61% more business income annually.
• Compared to older age groups, younger entrepreneurs are investing more resources into business expansion and business acquisition.
• Echoing a trend that spans across age groups, millennial business owners put more stock in traditional financing over credit cards.
• Over the last year, millennial entrepreneurs received an average of $44,729 in business financing at a 37.6% annualized interest rate.

These findings are useful for millennials who are considering business ownership, as well as for companies that market financial products to small businesses. Although entrepreneurial rates might not be very high among young people, those who actually become business owners are doing pretty well from a financial lens.

Note that for the purposes of this report, we followed the Pew Research Center’s age group definitions, counting anyone born between 1981 and 1996 as a millennial.^[3]

Key Findings: 2019 Millennial Entrepreneurs and Money Report

1. Millennial Entrepreneurs Have Lower Personal Credit Than Gen Xers and Baby Boomers, but Better Business Credit Than Any Other Age Group

Our review of more than 60,000 data points found that millennial entrepreneurs have lower personal credit scores than every other older generation of business owners. The average millennial business owner’s personal credit score is 10 points lower than Gen X entrepreneurs, 23 points lower than baby boomer entrepreneurs, and 42 points lower than silent generation entrepreneurs. Millennials beat out only the younger, post-millennial age group.

Personal credit score is based on an individual’s creditworthiness as a consumer, but this number crosses over into business in a big way. Personal credit is a primary factor that impacts a business’s access to startup and growth capital.

Unless your business is among the small handful that raise venture capital or that are bootstrapped from revenues, you’ll need external financing to launch and grow your business. With a low personal credit score, you’ll be limited to borrowing from willing family members or friends. Entrepreneurs with higher personal credit scores have a wider range of business loan offerings available to them.

Although millennials have lower personal credit scores than older generations, they have better business credit scores than any other age group. The difference was significant, placing millennial entrepreneurs 38 points higher than Generation X and 23 points higher than baby boomers. Post-millennials, also known as Generation Z, had the lowest business credit scores.

Here’s the breakdown of entrepreneurs’ credit scores by age:

Age Group	Personal Credit Score (300 to 850)	SBSS Business Credit Score (0 to 300)
Post-Millennials	664	146 (small sample size)
Millennials	699	194
Gen X	709	156
Baby Boomers	722	171
Silent Generation	741	181

 

SBSS scores—which stand for Small Business Scoring Service scores—come from FICO, the same agency known for calculating personal credit scores. FICO SBSS scores, which fall on a 0-to-300 scale, are based on a business owner’s personal credit history to some extent, but the biggest impact comes from a business’s payment history and business’s financials. The higher the score, the better, with scores above 160 generally considered good.^[4]

At the end of the day, millennials have lower personal credit scores, but this gets balanced out by better business credit. Even as millennials struggle to pay back personal debt and manage their personal finances, these results indicate that they are savvier with business finances.^[5]

2. Post-Millennials Surpass Millennials on Business Revenue

When it comes to business revenues, millennials are not at the top of the pack. Surprisingly, it’s post-millennial entrepreneurs who are generating big money. Second only to baby boomers, post-millennial business owners on average reported the highest annual revenues:

Age Group	Average Annual Revenue*
Post-Millennials	$1.67 million
Millennials	$1.04 million
Gen X	$1.36 million
Baby Boomers	$2.20 million
Silent Generation	$897,000

*Self-reported annual pre-tax revenue

What explains the surprising success of post-millennials, who are generating 61% more annual revenue than millennials and 23% more than Gen X? It could be a direct result of age. Older millennials, in their 20s when the recession hit, have had an uphill climb every since. Many have intentionally taken a more measured, deliberate approach with their finances. And in business, similar to investing, taking fewer risks often results in a smaller financial reward.^[6]

Post-millennials were just children when the recession hit and are more open to taking risks. Plus, post-millennials are even more adept at using technology than millennials, and are starting lucrative tech businesses with high revenue potential.^[7]

3. Younger Entrepreneurs Are Focused on Business Acquisition and Expansion

Many different factors affect a business’s spending decisions, including the industry, the stage of the business, and the business’s location. It turns out that age is also a good predictor of business goals. According to our data, older entrepreneurs are more focused on obtaining working capital and managing existing debt. Younger entrepreneurs want expansion capital and money to help them buy a business.

Here’s the raw data showing business owners’ priorities broken down by age. The numbers correspond to the percentage of business owners in each age group who sought financing for a specific business need. For example, 22.2% of millennial entrepreneurs who received funding through Fundera sought the money for expansion purposes.

Business Need	Post-Millennials	Millennials	Gen X	Baby Boomers	Silent Generation
Buy an Existing Business	6.3%	3.4%	2.7%	2.1%	2.9%
Buy out a Partner	1.3%	0.8%	0.6%	0.4%	0.3%
Expand Business	20.1%	22.2%	20.8%	18.1%	16.7%
Marketing and Advertising	4.4%	2.6%	2.1%	2%	1.9%
Purchase Equipment	14.5%	10.9%	9.7%	9.5%	8.3%
Refinance or Consolidate Debt	1.9%	6.4%	8.9%	10.7%	8.7%
Remodel an Existing Location	1.3%	1.8%	1.7%	1.7%	2.9%
Working Capital	32.7%	42.2%	45%	45.8%	47.4%
Other	3.1%	3%	3.2%	4.3%	3.8%

 

Millennials and post-millennials are focused on growth and acquisition, whereas older entrepreneurs are focused on maintenance. Although working capital was the number one need across age groups, a larger share of older entrepreneurs sought working capital. Working capital is essentially maintenance capital that you need to buy inventory, pay suppliers, make payroll, and support other day-to-day business activities. Older entrepreneurs were also more concerned with managing existing debt. More than one in 10 baby boomer business owners sought financing to refinance or consolidate debt.

Millennials and post-millennials were more likely to pursue expansion and acquisition (whether through a partner buyout or third party). For instance, 7.6% of post-millennials and 4.1% of millennials sought financing for a partner buyout or acquisition, compared to just 2.5% of baby boomers. Young entrepreneurs are buying businesses from retiring baby boomers, and the number of acquisitions and sale prices have steadily increased over the last several years.^[8][9] Other growth activities, like marketing and advertising, were also more popular among younger age groups in our study.

4. Millennial Entrepreneurs Put More Stock in Traditional Financing Over Credit Cards

Millennial business owners have ambitious goals to expand their companies and acquire new businesses, and they need powerful financial tools to match. Our study shows that millennial entrepreneurs are reaching for traditional financing instead of credit cards to meet their business goals.

Among business owners who received funding from Fundera in the last year, here’s the breakdown of the products they received:

Type of Financing	Millennials*	Gen X	Baby Boomers
Credit Cards	3%	2%	0.7%
Equipment Financing	2%	1%	2%
Invoice Financing	4%	2%	2%
Medium-Term Loan or Line of Credit	21%	24%	30%
SBA Loan	2%	2%	2%
Short-Term Loan or Line of Credit	67%	69%	63%

*Sample size too small for post-millennials and silent generation.

The trend is pretty even across the board. Among all age groups, more than 20% of business owners qualified for and opted for medium-term loans or lines of credit. Over 60% of business owners qualified for and opted for short-term loans or lines of credit. In contrast, only a small handful of business owners—3% or fewer across age groups—chose credit cards.

Regardless of loan purpose, business owners seem to think of business credit cards as secondary financing tools to loans. Loans typically offer higher amounts of capital and sometimes lower interest rates, making them more appealing to business owners of all ages.

5. Millennials Receive Less Financing Than Older Entrepreneurs but Don’t Pay a Premium

Millennials have ambitious expansion and acquisition goals, but they’re not borrowing as much money as Gen Xers and baby boomers. On average, millennials who received a loan through Fundera in the last year were approved for $8,515 less than baby boomers:

Age Group*	Average Loan Amount	Average Loan Cost
Millennials	$44,729	37.6%
Gen X	$53,244	37.5%
Baby Boomers	$55,928	33%
Silent Generation	$57,900	26.9%

*Sample size too small for post-millennials.

The difference in funding amounts most likely stems from the fact that millennial business owners generate lower annual revenues than Gen X and baby boomer-led businesses. Along with credit and time in business, annual revenue determines a business’s eligibility for financing and the amount of financing the business can receive.

It might also be that younger entrepreneurs simply need less funding. Technology has significantly lowered the barrier to entry of who can be a business owner. Operational costs, like office space, don’t present much of an obstacle for millennial entrepreneurs.

Interestingly, even though millennial business owners qualified for smaller amounts of financing, they didn’t pay significantly higher interest rates than older age groups. Millennials paid an average annual percentage rate (APR) of 37.6%, compared to 37.5% for Gen X and 33% for baby boomers.

A business owner’s personal credit score and the company’s business credit score are the main determinants of loan cost. Baby boomers, with the highest personal credit scores, were able to qualify for the lowest rates. Millennials had average personal credit scores balanced by strong business credit scores, so they didn’t have to pay a premium for financing.

Methodology and Definitions

To compile this report, we used original data from entrepreneurs who created an account on Fundera or applied for a loan on Fundera.  

Credit Score Data

The data on business owners’ Experian personal credit scores and FICO SBSS scores come from Fundera’s free credit monitoring service. Personal credit scores have been updated between April 2016 and October 2018. SBSS scores have been updated between April 2018 and October 2018.

The total sample size across age groups was 64,026 for personal credit scores and 3,353 for business credit scores. Unless noted as “small sample size,” the sample size within each age group was greater than 100.

Other Financial Data

Annual business revenue, loan cost, loan purpose, and other non-credit related financial data is based on a subset of business financing applications made through Fundera from October 1, 2017, to October 11, 2018. The total sample size across age groups was 23,911. Unless noted as “small sample size,” the sample size within each age group was greater than 100.

The results of this study hold true across industry. Within each age group, the same several industries were most popular—primarily restaurants, retail, construction, and home services. As a result, we were able to essentially control for industry while analyzing the data on entrepreneur credit and finances.

Age Group Definitions

For purposes of this study, we followed the Pew Research Center’s definitions of age groups:^[3]

• Post-Millennials: Born 1997 and after (age 21 and younger in 2018)
• Millennials: Born 1981 to 1996 (ages 22 to 37 in 2018)
• Gen X: Born 1965 to 1980 (ages 38 to 53 in 2018)
• Baby Boomers: Born 1946 to 1964 (ages 54 to 72 in 2018)
• Silent Generation: Born 1928 to 1945 (ages 73 to 90 in 2018)

When analyzing our data, we ignored post-millennials under 18 years old. Lenders typically require borrowers to be at least 18 years old, and it’s not the norm for minors under 18 to have a credit report. We also didn’t count business owners older than 90 because sample sets were too small to draw conclusions.

Millennial Entrepreneurs Are a Financially Savvy, Ambitious Group

The findings of this study show that millennial entrepreneurs are a financially savvy, ambitious group of business owners. Young people often get a bad rap for mishandling their credit and finances, but young entrepreneurs are doing pretty well.

Although millennials need to work on their personal credit scores and finances, millennial-owned businesses are creditworthy. And post-millennial entrepreneurs surprised us with the second-highest annual business revenue compared to any other age group. Young entrepreneurs are also laser-focused on business expansion and acquisition opportunities, positioning them as entrepreneurial leaders.

Article Sources:

1. Kauffman.org. “Millennials Can’t Keep Up with Boomer Entrepreneurs“
2. YoungInvicibles.com. “New Poll: Millennials Identify Student Debt, Retirement Savings as Barriers to Entrepreneurship“
3. PewResearch.com. “The Generations Defined“
4. FundingCircle.com. “What’s a Small Business Credit Score?“
5. NothwesternMutual.com. “Planning & Progress Study 2019“
6. Olui2.fs.ml.com. “Merrill Edge Report“
7. WTOP.com. “Gen Z: What You Should Know About the Post-Millennial Generation“
8. Forbes.com. “Baby Boomers Are Selling Their Businesses to Millennial Entrepreneurs, and It’s a Brilliant Idea“
9. APNews.com. “Business Sales Have Healthy Gain, Prices Up Over 11 Percent“