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What you should know about bootstrap financing

Many prospective business owners turn to bootstrap financing in order to get their new business up and running. This type of financing is often used by business owners who use their own money and other resources to get their business started thereby "pulling up their bootstraps". It is important to keep in mind that this may not work for everyone but it should be considered when you are opening a business. It is also important to keep in mind that there are a number of different ways to go about using bootstrap financing. This is often a viable option for business owners who may not be successful in obtaining financing from traditional sources. Many business owners also like the idea of using bootstrap financing since this reduces their dependence on traditional lenders while still allowing them to get the working capital that they need. Here is what you should know about bootstrap financing-

- Look at your savings account-If you are considering using bootstrap financing then the first place to look is at your savings account. This can be the easiest way to get money for your new business. However, you need to keep in mind that you may end up losing everything you invest in your business due to the high failure rate of new businesses. In addition, you need to be careful about how much you invest. Keep in mind that your new business will most likely not be profitable for even a year. If you need money to live on you should never invest that in your new business. You should also set up a payment schedule that allows you to repay yourself as fast as you can.
- Consider credit card-Another type of bootstrap financing that has become common is the use of business credit cards. However, it cannot be stressed enough that this is just another form of debt financing which can carry quite a high interest rate. New business owners should be especially careful about how much credit card debt they take on. It should also be stressed that you should never use personal credit cards to finance your business. Keep in mind that if your business should fail and you have charges on your personal credit cards you will still be responsible for paying them. This can also seriously damage your personal credit rating. If you do choose to use business credit cards for bootstrap financing you should use as little as possible and pay it off as fast as you can.
- Use trade credit-This type of bootstrap financing allows a new business to gain the goods or services that they need and then pay for it alter. Most often trade credit involves having 90 days to pay it back. However, you should keep in mind that if you vendors do extend this type of credit to you most often they will require some type of down payment. Savvy business owners will take the time to negotiate with several different vendors before taking trade credit from any particular source. This will allow you to obtain the best terms possible. In addition, you should make plans to pay back the trade credit as promptly as possible in order to maintain your good standing with your vendors.
- Find an angel investor-Another great way to use bootstrap financing is by finding an angel investor. There are many angel investors who are especially interested in investing in new businesses. They will be looking for businesses that are close to them and ones that they can take an active role in. If you can attract the interest of an angel investor this can be a highly beneficial way to get the bootstrap financing that you are looking for.

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