From the December 2002 issue of Startups

Think loans and grants for teen entrepreneurs are harder to come by than snow boots in Miami? Not according to Jeffrey Rodriguez and John Serrano, both 20, owners of Latin Artist in Brooklyn, New York. These two talented artists painted a detailed business plan so they could apply for a grant to get their custom airbrush studio and community art center up and running.

It was fate that first brought these two artists, who had known each other since childhood, together. Neither knew the other was artistically inclined until Rodriguez saw Serrano drawing at a local barber shop. Impressed, Rodriguez invited Serrano to come to his shop, a storefront in his parents' building where he had been creating airbrush designs for his friends at no charge using equipment lent to him by one of his Boy Scout leaders.

"I taught him the basics, and then he disappeared for two weeks," Rodriguez says of his future business partner. "He was practicing, and he caught up with me. He came back with really nice work."

Next Step
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Filling a Need
Although they already had a place for their business, a name and some equipment, the two still needed money to get started. Luckily, Rodriguez was a member of ASPIRA, a leadership club that encourages students to participate in community service in Latino neighborhoods. Through ASPIRA, the duo learned that another group, Youth Venture, awards grants--money a business is given but not required to pay back--to teens who start businesses emphasizing community service. To fulfill the requirements for the grant, the two decided to add another component to their store.

"My neighborhood is bad, and there are no youth programs," Rodriguez explains. "I wanted to get kids off the streets and get them involved." Involved in art, that is. Latin Artist was awarded a $1,000 Youth Venture grant, which the two used to fix up the store and begin giving free art lessons.

In part because of their community service, Latin Artist was named one of the top 20 youth businesses in the New York area by Fleet Bank in 2000. And as the business continued to grow, Rodriguez and Serrano continued to refine their business plan, both to determine their future direction and to make it easier to apply for and get a business loan.

How to Get That Cash
Young entrepreneurs are finding it increasingly easier to parlay a business plan into seed money, as Latin Artist's duo did. There are, however, a few things to keep in mind:

  • Grants like the one Latin Artist received are typically more difficult to get than loans, simply because many organizations that award them may require a component that your business simply may not have. Youth Venture, for instance, required that Latin Artist fulfill some sort of community need, which they did by offering free art lessons to neighborhood kids.
  • Whether you're considering a grant or debt financing (a loan), a detailed business plan is a must. While banks and other lending institutions are increasingly open to giving loans to teens, they require more than the name of your business and what you want to do. If you don't know how to write a business plan, there are several places you can find out. Start by talking to your school's business teacher or checking out the software selections at your local computer store. There are also Web sites that offer business plan tutorials, including the Starting Your Business section of the SBA's Web site and Entrepreneur.com.
  • Similarly, don't go into a meeting with your lending officer unprepared. Dress appropriately (even if you have to dust off the suit your mom made you buy last Easter), and, just like in school, prepare to be graded. Your lending officer will be judging you against the Five Cs of Credit: character (are you honest and dependable?), capacity (can you earn money to pay back the loan?), capital (do you have enough cash on hand to pay your bills?), collateral (do you have anything of value that the bank could seize if you fail to make payments?), and conditions (do you have the potential to continue earning money?). If you want to wow them, consider these questions carefully, and prepare answers. Better yet, draw up your own proposal for the lender to consider.

Finding a Lender
OK, you have a growing business and a killer business plan, and you're prepared to knock the socks off any lender you encounter. But where do you go? Most lending institutions will at least talk to you, especially if you or your parents have already established a good relationship with them. There are, however, a few places out there that cater directly to you.

The most well-known is Young Americans Bank in Denver. Opened in 1987, YAB is the only FDIC-insured bank in America that caters solely to customers under age 22. They offer everything from checking and savings accounts to certificates of deposits (CDs) and loans to customers all over the world.

In addition, there are a number of institutions and agencies that offer money to qualified applicants. The U.S. Department of Agriculture's Farm Service Agency (FSA), for example, makes operating loans to rural youth ages 10 to 20. Applicants must be involved in 4-H, FFA or a similar organization and can get loans for up to $5,000. If you think you qualify, talk to your club's advisor or visit www.fsa.usda.gov.

There are also about 20 youth credit unions across the country, including the San Francisco Youth Credit Union Program (YCUP) and Dollars for Dreams (DFD), the youth branch of Alternative Federal Credit Union in Ithaca, New York. To locate youth credit unions, contact your local Community Economic Development Association.

Finally, the SBA's Microloan Program serves underserved population groups, including minorities and women. Some youth organizations, such as The Entrepreneurial Development Institute and Community Development Credit Unions across the country, have also managed to classify youth entrepreneurs as an underserved population, which may make you eligible. To see if these programs are available in your area, call the Small Business Development Center office nearest you.