Alternative Startup Financing
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Startup Financing and Bootstrapping!
Bootstrapping in the context of this discussion is focused on financing a business startup or business continuation or growth through non-traditional methods.
Some say that bootstrapping is about starting a new business without startup financing or startup venture capital.
To new business owners that may mean borrowing from non-traditional lenders, raising small business startup grants, or working several jobs to raise cash, or changing your small business plan to startup with less financial need (for example, buy used furniture and lease two computers, instead of buying new furniture and purchasing three computers) and improve cash flow (for example, by selling your goods or services with shorter terms for more immediate payment or by providing incentives to customers to pay invoices immediately or quickly; and to extend terms with your suppliers to pay them over a longer period of time – these tactics will help you preserve cash).
I’ve recently heard horror stories of businesses that have had their operating lines of credit slashed to a degree that continued operations are not possible; and stories of asset financing that has fallen through at the last moment because the lending organization could not access the necessary funds. In fairness to the lending institutions, the business failure rate is high, and growing higher, so their ultra-conservative approach might be necessary.
Traditional business financing includes banks, government financial programs, and commercial financial lending institutions. These organizations provide lending products, operating lines of credit and cash flow programs, equipment leasing and asset financing, and more. Additionally, startup venture capital funds are another, rather more traditional form of raising financing.
But, due to current global financial market conditions, it can be challenging to, first, qualify for access to this startup financing - lending criteria has tightened to the point where most traditional lending institutions want a sure thing – and, second, to actually get the lending institutions to disperse the business start up loans, asset financing, or operating funds promised.
Some Non-Traditional Business Financing Methods Might include:
- use of credit cards;
- owner(s) income from a second (or even third) job;
- second mortgages;
- equity loans (secured by personal assets, such as a home);
- customer loans or advances on future orders;
- supplier loans;
- develop a strategic partnership;
- loans from family, friends, acquaintances, business associates.
For small business owners, obtaining financing to startup your business or to keep it operating (or to grow your business through acquisition, take-overs, and horizontal or vertical mergers) is usually a high stress experience. You need to ensure that your business can support the money you want to borrow. You need to build a strong business case and provide your lenders with detailed information on your business, your strategy, your human resources, your target market and marketing.
Can You Qualify For A Small Business Startup Grant?
One startup option might be to see if you can qualify for a small business startup grant: from your local association, or bank, or government. Typically, grants (which are not the same as a loan because they are not repayable) are given for some specific niche type of business; for example, a business that employs disabled workers.
Financial lenders need to be able to assess your knowledge, your capability, and your opportunities for success. Additionally you will need to put up personal guarantees for the money you are looking for; this means you need assets to back up your guarantees. Not all new business owners have the credit worthiness or credit rating to qualify with the lending institutions (or even to qualify for business startup grants).
If you are considering bootstrapping as a means of financing your business; it is a high stress experience. You may now owe money to family, friends, customers, suppliers, business associates, and so on. If your business doesn't succeed then those people who helped you startup will lose all or part of their investments.
The hardest financing for many entrepreneurs, but the lowest risk, is to finance it yourself by selling some assets (for example, your car, your house or anything else of value) or by working a second job until the business is sustainable.
All small business startups and new business owners, as well as owners wanting to continue their operations or grow their business, need to ensure that they develop and manage their small business plan successfully: ensure that your plan is doable and ensure that you understand your market, your competitors, your customers, your products and services.
Keep up-to-date in your industry; network with other small business owners inside, and outside, of your industry. Talk with your industry association and/or find a good business mentor or advisor to help you make the right business decisions and to improve your financial problem solving outcomes.
Bootstrapping is an alternative way of obtaining startup financing or acquiring business financing for ongoing operations or capital expenditure investments; make sure whatever method of financing you select that it's a best-fit for you and your business operations.
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Additional Reading:
Business Sale Agreement: Use Business Valuation Tools Before Selling
Business Valuation Methods: Use a Small Business Valuation Formula.
Profit Maximization and Cash Flow Management.
Gross Profit Margin: Understanding It Will Help You Better Manage Your Business.
The importance of Working Capital Management.
Return from Startup Financing to Calculate Proft.
Or Return From Startup Financing to More for Small Business.
