Should You Bootstrap or Seek Outside Financing For Your Startup?

January 3, 2017

8:30 pm

Aside from the idea itself, the most important detail contributing to small business success is the actual funding to get that idea off the ground. There is more than one way to achieve the initial funding you need for your startup, and each ones comes with a set of pros and cons. One of the biggest questions to ask, though, is this: Do I want outside funding or to bootstrap (or raise the money as I go) my small business?

There are a few questions you should ask yourself before you make this decision. Check them out below before you pull the funding trigger:

Should I Bootstrap My Startup?

Not needing to repay a small business loan is certainly a tempting proposition. A business that bootstraps essentially starts selling goods or services and then uses the proceeds to keep building the business. Another positive part of bootstrapping is that you maintain complete control of your business. Usually when larger investors are involved, they want a say in what happens with your startup. They want to see a return on their investment so they speak up. When you bootstrap, no one is looking over your shoulder or demanding you change the way you want to run things.

If you’re a business that doesn’t need a lot of cash or inventory to get started, bootstrapping is a good fit for your startup. If you can fund your initial costs, even if it’s a stretch, then bootstrapping could be the best option.

Should I Look for Outside Funding?

The good news for entrepreneurs is that the lending market is opening back up. People are much more confident in the economy than they were just a few years ago, which benefits people starting small businesses. Here are just a few of the outside funding sources you could seek:

Personal Loans

You can head to a bank and seek a small business loan that is levied against your personal assets. You could also find money by refinancing your home, or seeking a second mortgage. These are legitimate ways to fund a small business, but to make sure you aren’t selling yourself short, you’ll need to have a strong plan to repay those loans as quickly as possible.

Business Credit Cards

If you plan to pay back the money you borrow relatively quickly (within 6 months to a year), then a business credit card works just as well as a loan. You will pay interest on any balance that isn’t paid within a period – but the terms differ based on the business credit card you choose. You may be able to find one that gives you a little more time to pay without interest, or a lower interest rate than a bank loan, so do your research.

Crowdfunding

Technology has made small business ownership easier, particularly when it comes to funding. There are many sites that have popped up to meet the demand of everyday investors and small business owners for short-term projects. You can list your small business needs on a crowdfunding site and see if any investors are out there.

However, there is typically a slight catch to crowdfunding: you must supply in return for the donations. Just keep that in mind as you develop your crowdfunding campaign. If you offer investors a reward for investing instead of equity, then find a low cost and time efficient reward so you don’t end up spending a large portion of the investment on making good on promises. Selling your product at cost to investors before going to market is a great way to reward them for investing.

Small Business Loans

Business loans are a great means to get the initial capital needed to start your business. There are many options ranging from SBA loans to term loans that lenders offer. Platforms like Fundera aggregate many different small business lenders to review your business and offer financing options. Before going out for a business loan, make sure to browse the different loan products to find the type that fits your needs best.

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Ryan Kh is an experienced blogger, digital content & social marketer. Founder of Catalyst For Business and contributor to search giants like Yahoo Finance, MSN. He is passionate on covering topics like big data, business intelligence, startups & entrepreneurship. Follow his latest posts on Clear World Finance and Forumsmix.com

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