Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

August 8, 2011

Alternatives to Bootstrap Financing

Filed under: Entrepreneurship — Tags: , , , , — Mike Van Horn @ 11:03 am

Bootstrap financing may be unavoidable initially, but it’s a huge barrier to healthy growth, and you should get outside growth capital as soon as possible. Besides bank loans, what other sources are there?

• Borrow from yourself, even from your retirement fund. To do this, you must be as hard on yourself as any banker would be. You’ve got to demonstrate to yourself just as you would to  a banker that your business plan is sound and profitable and will pay back this loan in a timely fashion.

• Friends and family. Same thing goes. Before taking your rich uncle’s money, be able to demonstrate convincingly that this is a good business to invest in. He won’t give it to you otherwise.

• Leasing equipment and fixtures. Leasing can be very expensive but it’s worthwhile to shop different options to see where you can get the best deal. It’s best to have the advice of someone who is familiar with this type of financing.

• Vendor financing. Companies that want to do business with you and are convinced you are a good credit risk will extend you terms that will allow you to purchase goods from them. Use them to make money and then pay for these goods out of the resulting sales revenue.

As a last resort . . .

• Credit card. Financing via our credit card is an expensive trap. You’re playing with fire–or dynamite. Yet, sometimes we must do it. There’s a way to make it work if you are an excellent manager. If you have a good credit score, you will get offers for low cost balance transfers into a new account. Sometimes at 0% for a time. If you manage very well, you can replace one loan with another loan before the interest rate increases to a higher level. This is a dangerous game to play but it can be done successfully.

Powered by WordPress