IntroductionMany small business owners have had difficulties raising enough capital to start, operate, and/or expand there business. The unwillingness of bankers and other lenders to give entrepreneur's loans is one reason it is so hard for entrepreneurs to come up with this capital. Many entrepreneurs have employed bootstrap financing to help with this problem.
DifficultiesOne of the main reasons that small business owners find it hard to raise the capital needed is due to the percentage of failure which is at 70%. Statistics show 8 out of every 10 new businesses will fail within the three years.(Mason, 2009) Banks and other investors will be very selective of who they will loan funds. A entrepreneur must have a good business plan that shows in black and white why the business will be successful before a lender will even consider giving a loan.
BootstrappingBootstrap financing is an alternative option that a new business could employ to stretch its current capital supply.
Bootstrapping refers to using basically every personal resources available to you. One way is borrowing from family and friends to purchase used or re-furbished equipment. Leasing instead of buying a building.(Bootstrap financing definitions, 2007) If a family member wants to help you get your business going but doesn't have the money to invest, put them to work, they could help remodel and old building, or be very cheap employee. By using ones own ingenuity and family resources the investors are less likely to expect hi returns to their investment.
Bootstrap financing keeps long-term borrowing low, and helps the entrepreneur from having to sell stock to raise money, thus keeping control of the company.(Bootstrap financing definitions, 2007) By using investors who are familiar with you and the business you are starting up they are more likely to...