Bootstrapping |Reference | Business Finance

What is bootstrapping? (for startup finance)

BootStrapping– The term bootstrapping refers to a business owner self-financing a firm or business. The business owners create the business without external cash investment or loan debt financing.

Why Bootstrap a Company?

Using your own personal capital allows the business owner(s) to create their company using in-house financing.

  • Business owners with not enough cash – Sole proprietors and companies may not qualify for business loans unless they can guarantee the loan with their own assets (House, stocks, Cash). In certain EU countries, banks require a 50 to 100% asset guarantee from small business owners.
  • Your idea is not sexy – If your business idea is not exciting or fixing a pain point that is a cash cow, private equity investment firms and banks will not be interested. Most private equity investors want to cash out of an investment within five years of investing with a 400% return.
  • You are a business Nomad – Not willing to work 23 hours a day? Want to have your own life? Self-financing by bootstrapping allows you to take a day off to visit your family or pivot without financiers pressuring you to stay focused on exiting

The benefits of Bootstrapping your Company

  • Full control over your business financing and business growth.
  • Less stress to founders from debt liability. Your stress will be based on your business budget not someone else’s expectations.
  • The opportunity to create a corporate culture that fits with your brand and personal ideology.
  • Full ownership of the business. Self financed business owners own 100 percent of their company.
  • After three years your company is an asset in they eyes of banks. You can apply for a regular load and line of credit to continue growing your business.
  • No pressure to grow faster than you can handle.
  • Your company can stay private.
  • Your personal investments increases your interest in seeing your business thrive.