Bootstrapping refers to the idea of someone “pulling themselves up by their bootstraps.” In business, this means someone is self-funding their business rather than relying on loans from outside sources. Generally, this means the owner is willing to start their business with very little. They rely on personal savings, income and sweat equity, running their business with the lowest possible operating costs, fast turnaround and a cash-only approach. This is often an appealing option for many but in a short while it can hold you back from success. Here are some reasons why you should look into taking out a business loan even if you think you don’t need one:
You must grow to stay alive
One of the top 3 reasons businesses fail is undercapitalization. If a fear of debt is keeping you in bootstrapping mode and you balk at the idea of getting out a loan think of this: owning a small business is like being a shark, you must keep moving or you’ll die. The equation is simple, if you don’t have enough to capital expand or grow the business, you will stagnate and fail. This is an ongoing risk for bootstrapped businesses and the only way to get out of this holding pattern is to find the right type of small business loan to grow your enterprise.
You can’t afford to do it right
Creative control was a huge advantage in the beginning. You have an exciting vision and a collection of napkins with dreams drawn on the back of them. Then the reality hit. It cost more to do it the way you want than you could have ever anticipated. Now that you have started, it’s time to look into a small business loan to complete your vision. Customers are more likely to trust a business who has done it right than one that tried and got half way there. You’ve come this far and you’ve done a good job with next to nothing, considering a loan at this juncture could lead to the satisfaction that only comes from successfully executing your great idea.
The business takes all of your time
Like most small business owners, you don’t just own your business, you live your business. You are on call, you’re probably exhausted and bootstrapping isn’t going to save you from burn out. Good staff can make or break your business and they are one of the best investments you’ll make. With the right type of loan you can focus on making your business more successful while someone else takes care of the day to day operations. Once you have a good manager in place you are free to secure another loan to open a second location or expand in other ways.
You’ve taken on too much risk
When you are bootstrapping, all the risk and responsibility rests with you alone. If you make a profit, you gain a lot. If you fail you could lose everything because at this stage you may have put up all of your savings. Not only will most small business owners use all of their savings, they usually don’t take an income. This means that they have no safety net and have the added problem of not having had an income for a year or more. When you secure a loan, the lender assumes some of the risk which gives you much needed breathing room.
If you wait till you are making a profit to reinvest in your business, you may be waiting a long time. If you plan to continue bootstrapping, your business will grow at a much slower rate than it will if you inject more capital into it. Create a growth model that includes rounds of funding and adopt an attitude of getting business loans to make a profit.
Here at Fundkite, we believe in Americas small businesses which is why we have made it as simple as possible for you to get the finances you need to let go of your bootstraps and develop your business to its full potential. Find out how we work to get the results you need today.