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Financing Options for Starting a Business Later in Life

5 ins and outs of financing a post-retirement business

For more than 70 million Americans over age 50, business ownership is a practical option. One in four individuals ages 44 to 70 are interested in becoming an entrepreneur and 63 percent of Americans plan to work during retirement. Furthermore, from 1996 to 2012, Americans ages 55 to 64 had a higher rate of entrepreneurial activity than those ages 20 to 34.

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So how do encore entrepreneurs — those age 50-plus who are considering starting or expanding a small business — obtain the capital they need? How much does starting a business really cost? What loans are available? Should you break into your retirement nest egg?

Here are some considerations and options for financing a postretirement business.

Starting a business needn't cost much.

Not all businesses need lots of capital to get off the ground. Many home-based businesses, for example, can be started for about $1,000 or less, with most of that funded with a business credit card. Home-based franchises can get going for as little as $2,000. To help determine how much your business venture would cost, read "How to Estimate the Cost of Starting a Business From Scratch," a U.S. Small Business Administration Web page.

Get advice from SCORE.

A great way to start weighing your financing options is to talk to an expert business counselor from SCORE, a nationwide nonprofit association dedicated to educating entrepreneurs and helping small businesses start, grow and succeed. SCORE pairs aspiring business owners with mentors who have extensive real-world experience.

Access capital via SBA-backed small-business loans.

Have you taken a look at an SBA-backed loan? Over the past year, small-business loans backed by the SBA reached the highest volume mark in the agency's history — more than $30 billion.

Loans are available for a variety of purposes, including starting and expanding a business, exporting products or services overseas, and supporting green industries. SBA's Loans and Grants Search Tool lets you quickly find financing for which you might qualify. You can also talk to your local SBA office.

Using private investment money.

Private investment in the form of venture capital, angel investing and even government venture capital programs tends to be reserved for high-growth start-ups. If this is you, read "Five Tips for Finding and Securing Private Investors for Your Start-Up."

Borrowing against or tapping into your retirement account.

If you've exhausted all other options, you may find yourself wondering whether you should borrow against or tap into your retirement funds. Although it might be tempting to dip into that pool of money, for most people, it is a very dangerous step. Remember, your retirement savings are the foundation of your financial security. If your business isn’t successful, you do not have as much time to rebuild that nest egg as a younger entrepreneur. Do not raid your retirement funds to start a business.

Visit the SBA’s website to learn more about options for financing your business. Their resources can help you improve your odds of business success by understanding your financing needs as well as the options that are available to help you start, manage and grow your business.

Remember to go to the AARP home page every day for tips on keeping healthy and sharp, and great deals.

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