(This article was originally published in NextIdea, our weekly newsletter on side hustles and pursuing financial independence. Sign up for it using the box below.)
It’s Fed week, and rates are once again going up in an effort to combat white-hot inflation.
When federal debt becomes more expensive, banks and creditors often respond by increasing interest rates on their own products — credit cards and loans — in order to remain profitable. And when business capital is more expensive or harder to access, it puts a direct strain on small business owners and entrepreneurs.
If you’re dabbling in the sublet economy — the business of renting out your existing personal property, big or small, to generate semi-passive income streams — this is important news. Here’s why: For your car, your swimming pool, or your backyard to make you money, you first have to secure those big-ticket purchases. If you don’t already have the asset, a large upfront investment will be needed. And if you’re using debt or other forms of financing to cover your ass(ets), you’ll want to keep a close eye on interest rates in the coming months.
This was Marcus Gram’s predicament. The 31-year-old wanted to get into investment real estate, but didn’t have enough upfront cash to land any viable deals.
So he began buying refurbished vending machines for as little as $2,000, stocking them with snacks and drinks purchased from Costco in bulk, and placing them at local small businesses that had foot traffic.
After his first attempt tanked, one tweak helped the young entrepreneur find his groove, and his tiny side hustle has grown into a full-blown business. NextAdvisor contributor Chi Odogwu got the scoop:
You Could Also Use Funding to Get Started
But while we’re on the topic of funding, it’s important to note that minority and women-owned business enterprises (MWBEs) encounter more obstacles when getting ideas off the ground. They’re more likely to be given higher interest rates on business loans, and they’re also more likely to be denied funding altogether.
Black-owned businesses are 20% less likely to receive a loan from a large bank than white-owned businesses, even when “characteristics and performance” are similar, according to data from the Federal Reserve. And despite women and men having comparable average FICO scores, women receive, on average, a 33% smaller business loan than men.
Closing The Gender Gap
Women-owned businesses in America produce $1.9 trillion in annual sales, but a woman’s ability to operate autonomously both in terms of personal finances and entrepreneurial funding is still recent.
The Equal Credit Opportunity Act of 1974 gave women the ability to open their own credit card and loan accounts. However, women were still not allowed to receive business funding due to the perception that they were “less reliable” borrowers. A woman had to have a man co-sign her business loan up until 1988, when HR 5050, the Women’s Business Ownership Act, was signed into law.
Since the 1970s, the number of women-owned businesses has grown by over 3,100%. But most are still small: 88% of these businesses generate less than $100,000 a year in revenue.
There are funding resources specifically for women entrepreneurs available at the US Small Business Administration and your local Community Development Financial Institution (CDFI). A searchable database of CDFIs can be found here.
Many aspiring entrepreneurs turn to personal or business credit cards to get their small businesses off the ground, but there are more reliable forms of funding, such as Community Development Financial Institutions (CDFIs). Learn more about them here:
Read up on your financial options so you’re well-equipped to make your best next money move. But don’t forget to also feel inspired and have fun along the way.