WHEN Marvin Gay, 71, a retired accountant, and his wife, Leslie, 61, decided to open a Painting With a Twist franchise in St. Petersburg, Fla., their start-up costs were close to $70,000.
To finance the business, which combines art instruction with bring-your-own wine (or soft drink) parties, the couple tapped their personal savings.
“The interest rate at the time, 2009, was about zero, so we weren’t making any money on our savings,” he reasoned. “We saw it as an opportunity to take a portion and use it for something we could control — we were investing in ourselves.”
A year and a half later, the couple spent roughly $60,000 to open a second studio in Tampa. “Now we’re ready for a third,” Mr. Gay said. “Call me nuts.”
Well, not that crazy. Last year, according to Mr. Gay (who has been kidded for decades because his name sounds like that of the late soul singer Marvin Gaye), the two operations pulled in $750,000, up 32 percent over 2012.
And after some growing pains, both studios are in the black, each drawing about 350 paying customers weekly and allowing the Gays to draw salaries for themselves.
They are part of a growing cohort of retirees starting businesses. According to a study published by the Kauffman Foundation and LegalZoom, about 20 percent of all new businesses in 2013 were created by entrepreneurs ages 50 to 59, and 15 percent were 60 and over.
But financing a retiree start-up can be tricky. The most common method is using personal savings, as the Gays did, said Edward Rogoff, the Lawrence N. Field Professor of Entrepreneurship in the Zicklin School of Business at Baruch College in New York. That can be risky and costly, given the rules governing withdrawals from retirement accounts.
But retirees can also hunt down local economic development loans or even use crowdfunding sites to raise capital.
“Generally, as a person gets old, their tolerance for risk decreases, or it should decrease,” Mr. Rogoff said. “Somebody who is 26 and starting a business can bet the ranch because if it fails, at 31, they can start another business. But somebody who is 61 or 68 who starts a business can’t bet the ranch because at 75 or older, they won’t be able to get the ranch back and start over.”
There are a variety of sensible approaches, Mr. Rogoff said. A retiree might find a partner to chip in, or start small, with a website, for example, rather than a brick-and-mortar store.
A Senate hearing in February, titled “In Search of a Second Act: The Challenges and Advantages of Senior Entrepreneurship,” explored issues like illegal age bias by lending organizations and the need to develop tax incentives for senior start-ups. One idea discussed was expanding initiatives like the State Employee Assistance Program to allow long-term unemployed older adults to use their unemployment benefits to start a business.
“As the nation continues to struggle with unemployment near 7 percent, it makes sense to consider reforms to the unemployment insurance program that would help people get back to work,” said Senator Susan M. Collins, Republican of Maine, of the Senate Special Committee on Aging. “This could be through assistance to help people start their own businesses.”
In addition to dipping into personal savings accounts, another common option for older entrepreneurs is calling on the generosity of friends and family. When Bill Skees, then 56, needed capital to finance his independent bookstore Well Read New & Used Books in Hawthorne, N.J., he asked his six siblings for loans, pledging 3.5 percent interest.
That was about four years ago, and with the sluggish economic recovery, he’s had to slow down his payback plan. “My family is my biggest cheerleader and has been great about it,” he said. “That’s because I do have a plan, and I kept the lines of communications open.” Mr. Skees expects that the money will be fully repaid by the end of the year.
For many who want to start a business, the local bank is frequently a first stop for financing. But “most banks aren’t that keen on loans for a senior business start-up, because they are not big enough,” said Elizabeth Isele, a founder of SeniorEntrepreneurshipWorks.org, a nonprofit venture geared toward helping workers over age 50 start their own businesses.
For those that do clear the gatekeepers, a solid business plan and a clean credit record are prerequisites. And a lender probably will want the borrower to be prepared to personally invest in the business.
“Banks don’t like to lend money for ideas,” Professor Rogoff said. “They lend money against cash flow for existing businesses and against assets they can collect against in the future.” One resource for learning more is BusinessUSA, the federal government’s site for entrepreneurs seeking small-business loans.>>>