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Looking to start your own business? You’re not alone. Some 76% of Gen Z and millennials dream of being their own boss, according to a 2022 Microsoft report.

While launching your own business allows you plenty of professional freedom, it can also be expensive. As you’re creating your business plan, one question you’ll likely face early on is, how much does it cost to start a business?

The average small business owner spends around $40,000 in their first full year. But that amount can vary based on a number of factors, including the size, type and location of your business.

Let’s take a closer look at the startup costs of different types of businesses and common ways to cover the expenses.

Typical Small Business Startup Costs

The old adage is true: You have to spend money to make money. And unfortunately, some of the biggest business costs can come during the startup phase, when you are defining your business goals, finding a location, purchasing domain names, and generally investing in the infrastructure.

In order to make sure your business is on firm financial footing, it’s important to estimate your small business startup costs in advance. Here are some common ones to keep in mind:

Payroll

Many small businesses start out as a company of one. But if you’re planning on having employees, salary will likely be one of the biggest costs you’ll have. After all, offering an attractive pay and benefits package can help you recruit and retain top talent.

In addition to wages, you might also want to budget for other types of payroll costs, such as overtime, vacation pay, bonuses, commissions, and benefits.

Office Space

No matter what your business is, you’ll need somewhere to work. Are you leasing a storefront, or will you buy a membership to a co-working space or startup incubator? If you’re planning to work from home, consider whether your new business will increase your internet or utility bills.

And don’t forget about the supplies you’ll need to do the work. Depending on your business, this could include things like computers, phones, chairs and desks, paper supplies, or filing cabinets.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Inventory

If you’re starting a business that sells products, you’ll need to have some inventory ready to go. Calculating stock as part of your start-up costs ensures that you can buy your product in advance, so that you’re ready to serve customers from day one.

Licenses, Permits, and Insurance

Some businesses, especially storefronts and restaurants, require more legal leg work than others.

For example, if you’re starting a native-plants landscaping business, will you need a permit? If you’re starting a new bar, will you need a liquor license? Licenses and permits vary by city and state, but most come with an application fee.

Likewise, your new business may require one or more insurance policies to protect you in case of future litigation, so be sure to factor in the cost of monthly premiums.

And don’t forget about the costs associated with registering your business. Whether you plan to set up shop as a sole proprietorship, corporation, limited liability corporation or other business entity, you’ll need to pay a nominal fee. The amount will depend on the state where you operate.

And if you plan on enlisting the help of a lawyer, accountant or tax professional to get your business up and running, add those potential costs to your budget as well.

Advertising

Getting the word out about your new business is one of the most important things you can do to ensure that business starts off strong. Whether you want to advertise on social media or take out a billboard, your startup costs should reflect money you plan to put toward taking out ads for your business.

Differences in Startup Costs Based on Industry

The actual cost of starting a small business can vary by business and industry. Here’s what you might be looking at if you want to start a few common types of small businesses.

Online Business Startup Costs

Like brick and mortar stores, the cost of doing business online varies depending on the type of business you have. But in general, you’ll need to budget for things like:

•   Web hosting service and domain name

•   Web design and optimization

•   E-commerce software

•   Payment processing

•   Content creation and social media

If you’re selling products, you will need to invest in inventory and shipping. If you’re providing services, you may need to hire employees. All of these costs can be significant.

However, one benefit of starting your small business online is that you may be able to keep other costs low. For example, if you can conduct business from home, you may not need to rent office space, which can be a major savings. If you’re able to do the work without purchasing inventory or hiring employees, the startup costs can be even lower.

Average startup cost: $500 to $20,000 or more (depending on your business)

Storefront Startup Costs

If your business idea requires a physical space, your startup costs might range from $1,000 for a small kiosk inside a mall or park to more than $69,000 for something like a home goods store.

Although $69,000 might seem like a daunting number, remember that many smaller, independently owned stores began with a much smaller budget.

Average retail startup cost: $39,210

Restaurant Startup Costs

If you’re betting on bringing in bank by selling your grandma’s famous bánh mì, you could be looking at startup costs of anywhere from $40,000 for a used food truck or cart to up to $3.7 million to buy a franchise restaurant. Typically, small restaurant costs, including coffee shops, fall somewhere in the $80,000 to $3000,000 range.

Average startup cost: $375,000

How to Finance Your Startup Business

Many who want to start a business are overwhelmed by the initial costs, but there are several ways to fund your passion project.

Friends and Family

Perhaps one of the most common ways to raise money for your small business is to ask friends and family to invest in you.

Friends and family loans can be ideal for financing a new small business because you can negotiate low-interest rates, flexible pay-back schedules, and avoid bank fees. Of course, borrowing money from friends and family can quickly become complicated by family drama, so make sure to agree on conditions before taking out a family loan.

Outside Investors

When we hear about startup companies, we frequently hear about so-called “angel investors” sweeping in to fully fund new businesses. But there are other practical ways to fund your small business with outside investors.

Some small businesses use crowdfunding platforms to find investors who each contribute a small amount, and others use startup funding networks to find investors looking to fund their specific type of business. Outside investors want to know that your business is likely to succeed, so you’ll need a solid business plan to land outside funders.

Personal Savings and Investments

Most people end up covering some of their small business start-up costs out of their own pocket. Self-funding your new business venture can be the most convenient option. After all, if you’re your own funder, you don’t have to worry about family drama or picky investors. And putting your own money on the line can be an extra motivation to make sure that your business is set up to succeed.

Of course, it can seem overwhelming to save up enough money to fund your small business. Luckily, there are simple strategies to effectively manage your money.

Business Loans

If you’re looking to purchase equipment, inventory, or pay for other business expenses, a business loan might make sense for you.

There are various types of small business loans available, each with different rates and repayment terms. Note that in some cases, lenders may be reluctant to give loans to a brand-new business. You might need to put up some type of collateral to qualify for funding.

Personal Loans

A personal loan can be used for just about any purpose, which can make it attractive for entrepreneurs who want to turn their passion project into a reality. These loans are usually unsecured, which means they’re not backed by collateral, like a home, car, or bank account balance.

Personal loan amounts vary. However, some lenders offer personal loans for as much as $100,000. Most personal loans have shorter repayment terms, though the length of a loan can vary from a few months to several years.

While there’s a great deal of latitude with how you use the funds, you might need to get your lender’s approval first if you intend on using the money directly for your business.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

The Takeaway

Going into business for yourself can be personally and professionally fulfilling. But it can also be expensive, especially if you’re starting from scratch. Estimating your startup costs early on can help ensure you’re on solid financial ground from the get-go. Labor, office space, and equipment are among the biggest expenses facing many entrepreneurs, but there are smaller fees and charges you’ll likely need to consider.

Fortunately, small business owners have no shortage of options when it comes to covering startup costs. Dipping into personal savings, or asking friends and family to invest are popular choices. Taking out a business loan or personal loan is another way to help finance a new business. The money can be used for a variety of purposes, and that flexibility can be especially useful when you’re just starting out.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.

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SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A frequently offered nugget of financial wisdom is to use unexpected financial windfalls to pay down your debt. But what happens when paying down your loans comes with a prepayment penalty?

The best way to avoid prepayment fees, of course, is to choose a personal loan or mortgage without prepayment penalties. If you’re stuck with a prepayment penalty on your loan, however, all is not lost. There are ways to avoid paying loan prepayment penalties.

What Is a Prepayment Penalty?

A prepayment penalty is when a lender charges you a fee for paying off your loan before the end of the loan term. It can be frustrating that a lender would charge you for paying off a loan too early because it’s natural to think a lender would appreciate being repaid as quickly as possible.

In theory, a lender would appreciate getting repaid quickly. But in reality, it’s not that simple. Lenders make most of their profit from interest, so if you pay off your loan early, the lender is possibly losing out on the interest payments that they were anticipating. Charging a prepayment penalty is one way a lender may recoup their financial loss if you pay off your loan early.

Lenders might calculate the prepayment fee based on the loan’s principal or how much interest remains when you pay off the loan. The penalty could also be a fixed amount as stated in the loan agreement.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

Can You Pay Off a Loan Early?

Say you took out a $5,000 personal loan three years ago. You’ve been paying it off for three years, and you have two more years before the loan term ends. Recently you received a financial windfall and you want to use that money to pay off your personal loan early.

Can you pay off a personal loan early without paying a prepayment penalty? It depends on your lender. Some lenders offer personal loans without prepayment penalties, but some don’t. A mortgage prepayment penalty is more common than a personal loan prepayment penalty.

Recommended: When to Consider Paying off Your Mortgage Early

Differences in Prepayment Penalties

The best way to figure out how much a prepayment penalty would be is to check a loan’s terms before you accept them. Lenders have to be upfront about how much the prepayment penalty will be, and they’re required by law to disclose that information before you take on the loan.

Personal Loan Prepayment Penalty

If you take out a $6,000 personal loan to turn your guest room into a pet portrait studio and agree to pay your lender back $125 per month for five years, the term of that loan is five years. Although your loan term says it can’t take you more than five years to pay it off, some lenders also require that you don’t pay it off in less than five years.

The lender makes money off the monthly interest you pay on your loan, and if you pay off your loan early, the lender doesn’t make as much money. Loan prepayment penalties allow the lender to recoup the money they lose when you pay your loan off early.

Mortgage Prepayment Penalty

When it comes to mortgages, things get a little trickier. For loans that originated after 2014, there are restrictions on when a lender can impose prepayment penalties. If you took out a mortgage before 2014, however, you may be subject to a mortgage prepayment penalty. If you’re not sure if your mortgage has a prepayment penalty, check your origination paperwork or call your lender.

Checking for a Prepayment Clause

Lenders disclose whether or not they charge a prepayment penalty in the loan documents. It might be in the fine print, but the prepayment clause is there. If you’re considering paying off any type of loan early, check your loan’s terms and conditions to determine whether or not you’ll have to pay a prepayment penalty.

How Are Prepayment Penalties Calculated?

The cost of a prepayment penalty can vary widely depending on the amount of the loan and how your lender calculates the penalty. Lenders have different ways to determine how much of a prepayment penalty to charge.

If your loan has a prepayment penalty, figuring out exactly what the fee will be can help you determine whether paying the penalty will outweigh the benefits of paying your loan off early. Here are three different ways the prepayment penalty fee might be calculated:

1. Interest costs. If your loan charges a prepayment penalty based on interest, the lender is basing the fee on the interest you would have paid over the full term of the loan. Using the previous example, if you have a $6,000 loan with a five-year term and want to pay the remaining balance of the loan after only four years, the lender may charge you 12 months’ worth of interest as a penalty.

2. Percentage of balance. Some lenders use a percentage of the amount left on the loan to determine the penalty fee. This is a common way to calculate a mortgage prepayment penalty fee. For example, if you bought a house for $500,000 and have already paid down half the mortgage, but want to pay off the remaining balance in a lump sum before the full term of your loan is up. In this case, your lender might require that you pay a percentage of the remaining $250,000 as a penalty.

3. Flat fee. Some lenders simply have a flat fee as a prepayment penalty. This means that no matter how early you pay back your loan, the amount you’ll have to pay will always be the prepayment penalty amount that’s disclosed in the loan agreement.

Recommended: Debt Payoff Guide

Avoiding a Prepayment Penalty

Trying to avoid prepayment penalties can seem like an exercise in futility, but it is possible. The easiest way to avoid them is to take out a loan or mortgage without prepayment penalties. If that’s not possible, you may still have options.

If you already have a personal loan that has a prepayment penalty, and you want to pay your loan off early, talk to your lender. You may be offered an opportunity to pay off your loan closer to the final due date and sidestep the penalty. Or you might find that even if you pay off the loan early and incur a penalty, it might be less than the interest you would have paid over the remaining term of the loan.

You can also take a look at your loan origination paperwork to see if it allows for a partial payoff without penalty. If it does, you might be able to prepay a portion of your loan each year, which allows you to get out of debt sooner without requiring you to pay a penalty fee.

For example, some mortgages allow payments of up to 25% of the purchase price once a year, without charging a prepayment penalty. This means that while you might not be able to pay off your full mortgage, you could pay up to 25% of the purchase price each year without triggering a penalty.

Some lenders shift their prepayment penalty terms over the life of your loan. This means that as you get closer to the end of your original loan term, you might face lower prepayment penalty fees or no fees at all. If that’s the case, it might make sense to wait a year or two until the prepayment penalties are less or no longer apply.

When it comes to your money, you don’t want to make any assumptions. You still need to do your due diligence by asking potential lenders if they have a prepayment penalty. The Truth in Lending Act (TILA) requires lenders to provide documentation of any loan fees they charge, including a prepayment penalty. Also, under the TILA, consumers have the right to cancel a loan agreement within three days of closing on the loan without the lender taking any adverse action against them.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

The Takeaway

When taking on debt, paying as little as possible on top of the principal amount borrowed is a good general rule of thumb. Consumers generally seek the lowest interest rates they can qualify for, a loan term that they feel comfortable with, and a loan that doesn’t add fees to their debt load.

A prepayment penalty is one fee that can be avoided by asking questions of the lender and looking at the loan documents with a discerning eye.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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The average American has less than $90,000 in retirement savings, as of mid-2023. That’s far below what many people will likely need, and many Americans aren’t really sure what sorts of goalposts or milestones they should be striving for by certain ages when it comes to saving for retirement.

It can be helpful to see how one compares to others in their age range. Averages can help investors see if they are on track to retire when they plan to. While each person is different in terms of their personal retirement goals, lifestyle, ability to save, and projected expenses, setting goals and benchmarks can help an individual figure out how much to save and where to put money for retirement.

Average Retirement Savings By Age

Below is a breakdown of retirement savings by age group, ranging from people in their 20s to people in their 70s.

Age Group	Average Retirement Savings
20s	$35,800
30s	$67,400
40s	$77,400
50s	$110,900
60s	$112,500
70s	$113,900

Average Retirement Savings in Your 30s: $67,400

Most Americans in their 20s and 30s haven’t reached their peak earning years, and many might be paying off student loans, and saving up to buy a house or have kids. Retirement isn’t always top of mind. But the earlier people can figure out which retirement plan is right for you and commit to actually starting a retirement savings plan, the more they will benefit from compound interest over time.

Recommended: How to Save for Retirement at 30

Average Retirement Savings in Your 40s: $77,400

Since most people are making more money at this age than they ever have, it can be tempting to spend it on fancy vacations, cars, and other things. Many people also have mortgages, families, and other big-ticket expenses during this time in their lives as well.

But those who put that money towards retirement may be able to reach their goals early and retire relatively young.

For men, these are peak earning years, as they tend to continue increasing their earnings until age 55. Women tend to reach their peak earnings much younger at age 44. Either way, retirement savings should be top of mind for people in this age group.

Average Retirement Savings in Your 50s: $110,900

At this age, some Americans are on track to reach their retirement goals, while others are far off. There are still ways to catch up, such as cutting unnecessary expenses, moving to a smaller home, or putting any additional pay, income, or bonuses into retirement accounts.

Average Retirement Savings in Your 60s: $112,500

Although the goal for many is to retire at around 60, many Americans have to keep working since they don’t have enough savings. In some cases, people plan on working at this stage of life anyway, so it’s not a bad thing. A lot of people work during retirement, although some do so out of necessity.

Ideally, working in later years of life is a choice and not a necessity. After this age, people tend to be spending rather than saving, so the average retirement savings amounts decline.

Retirement contributions tend to increase as people age partly because they are earning more and partly because they are thinking about retirement more.

💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.

Ideal Retirement Savings Amounts by Age

Because the cost and standard of living varies so greatly, there aren’t clear dollar figure amounts that each age group should aim to have saved for retirement. But there are suggested guidelines.

•  By age 30: It’s generally recommended that people save an amount equal to their annual salary by the time they reach age 30. That may not be a realistic goal for many people, but it can be a general guideline or goal to aspire to.

  One way to achieve this is to save 10-15% of one’s gross income starting in their 20s. Some employers will match retirement contributions if employees save a certain amount each month, so it’s a good idea to contribute at least that much to take advantage of what is essentially free money.

•  By age 40: It’s recommended that investors have three to four times their annual salary saved by age 40.

•  By age 50: Investors are typically advised to have six times their salary saved by age 50.

•  By age 60: It’s recommended that investors have eight times their salary saved by age 60.

•  By age 67: Investors are typically advised to have ten times their salary saved by age 67. For example, if a 67 year old makes $75,000 per year, they should have $750,000 saved.

Is Anyone Saving Enough for Retirement?

Despite the above recommendations, most Americans don’t have nearly these amounts in their retirement accounts. A significant portion of Americans don’t have any retirement savings at all — and that includes Americans who are near retirement age.

So, while some people are saving enough for retirement, a lot of people aren’t. Social Security may not be enough for a lot of people to make ends meet, either.

Social Security and Your Retirement

It’s more important than ever to create a retirement plan and stick to it, because America is facing a retirement crisis. Social Security was designed to help people pay their expenses during retirement, but it currently pays less than half of the average retiree’s monthly expenses. As of mid-2023, the average Social Security payment is around $1,800 per month.

Best Ways to Save for Retirement

It can be stressful to feel behind on saving for retirement, but it’s never too late to start.

There are several ways to save for retirement — but a good place to start, if you haven’t already, is by creating a budget to track expenses. This allows you to see where your money is going and identify categories of spending that could be reduced, with the money redirected to a retirement savings account.

Some retirement plans also have catch up options for those who start late — typically, individuals older than 50 can contribute extra funds to their retirement accounts.

No matter how much you put aside for retirement, or whether you contribute to a traditional IRA or a Roth IRA, a 401(k) or an after-tax investment account, a good strategy is to automate savings. With automated savings, the money is deducted from your paycheck or your bank account automatically — making it easy to forget that the money was ever in the account in the first place.

The Takeaway

The average American has less than $90,000 in retirement savings, though the number varies depending on age groups and other factors. Knowing how much others in your age group are saving for retirement can help give you a sense of comparison, but it’s important to remember that most Americans aren’t saving enough.

There are a number of different formulas, calculations, and rules of thumb to help individuals figure out how much money they’ll need in retirement. While these figures can be helpful, it’s also important to take personal goals, financial responsibilities, and lifestyle into consideration.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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