Startup Financing: The Pros and Cons of Bootstrapping

How do you plan on financing your startup? Research shows that it takes about $30,000 to $40,000 to start a new small business in the United States. Medium- and large-sized businesses have even higher startup costs. While you can always apply for a business loan from a bank or alternative lender, another idea is bootstrapping. Bootstrapping is self-financing. It involves the use of your own credit cards, savings accounts and other financial resources to finance your startup

Startup Financing: The Pros and Cons of Bootstrapping

Pro: Fast Capital

You can finance your startup immediately with bootstrapping. There’s no application process or approval process. As long as you have access to personal financial resources, you can use them to finance your startup. This makes bootstrapping a source of fast capital.

Pro: Ownership Control

While other forms of financing may require you to forfeit an ownership stake in your startup, bootstrapping does it. You’ll retain complete ownership of your startup. Equity financing, in comparison, involves the sale of ownership. You can sell shares of your startup to an investor. The investor will become a partial owner, and you’ll raise capital with which to finance your startup. Regardless, bootstrapping isn’t a form of equity financing, so it allows you to retain complete ownership of your startup.

Con: Limited Capital

One of the biggest disadvantages of using bootstrapping to finance a startup is that it offers limited capital. You’ll only be able to use the financial resources in your own, personal name. If you have a lot of credit cards with high spending limits, bootstrapping may suffice. But if your personal financial resources are limited, bootstrapping may not offer even capital to keep your startup afloat.

Con: Slower Growth

Your startup may experience slower growth if you finance it with bootstrapping. Capital is essentially what fuels growth. Startups may use capital to grow their operations. Bootstrapping means your startup will access to limited capital, which may turn in slow its rate of growth.

Con: Risk of Loss to Personal Finances

With bootstrapping, you’ll be putting your own money on the line. If your startup succeeds, you’ll recoup these personal investments in the form of higher returns. Not all startups are a success, however, and many of them take years to become profitable. With bootstrapping, there’s an inherent risk of loss to your personal finances.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.