How to use bootstrap financing to start your business
Many prospective business owners find that the biggest challenge of getting their business up and going is finding the money they need. In today’s tight lending market it can be difficult for a new or inexperienced business owner to get the financing that he or she needs. Because of this many prospective business owners are turning to bootstrap financing. Bootstrap financing is where you use primarily your own resources to get your business off the ground. While this may not be a viable option for everyone it can serve as a good source of working capital for some businesses and their owners. Best of all, if you can use bootstrap financing you can reduce your dependence on using debt financing which can severely hamper your business when you are first starting out. Here is what you need to know about how to use bootstrap financing to start your business-
• Start with your own savings-The first place to look for money to use to start your business is your own savings account. This is the easiest and most secure way to obtain the money that you need. However, you need to be able to resolve yourself to the fact that you could lose everything. This means that it is critical that you don’t use money that you can’t afford to lose. You should never use money that you will need to pay rent, mortgage, buy food, or other necessitates of life. In addition, you should never use money that is earmarked for a big purchase in the next five years. Finally, you want to make sure that you establish a pay back schedule so that you can replenish your own savings even as you are building your business.
• Consider barter or trade-Many new business owners use barter or trade to get the things that they need for their new business. Keep in mind that this won’t always work depending on the type of business that you are setting up but it can be helpful to talk to vendors about providing services in kind for what you need. Remember it can pay to think outside of the box and take risks. The worst someone can say is no and you are not worse off then before you asked!
• Use credit cards sparingly-Many new business owners are turning to using credit cards to get their business up and going. However, there is a note of caution here. Using credit cards is just another method of debt financing and the interest rates can be extremely high. New business owners should be especially careful about the amount of credit card debt that they take on. It should also be stressed that you should never use a personal credit card to finance your new business. Keep in mind that if you do this and your business fails you will still be responsible for the debt you have incurred. This can be very damaging for your personal credit. If you do use credit cards to help you bootstrap finance you should pay them off as quickly as you can.
• Look for angel investors-Another great way to use bootstrap financing is to get the attention of an angel investor. There are many angel investors who are specifically looking for startup businesses that they can finance and help grow. Keep in mind that your best chance to get an angel investor’s attention is locally since most angel investors want to invest in business that they can keep a close physical eye on. Check with your attorney, tax preparer, banker, and local Business Alliance for referrals to angel investors.
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