Bootstrap or Loans: How to Finance Your Business

 Photo by  Jimi Filipovski

Deciding how to finance your business, whether it's getting off the ground or advancing growth, can impact the success and future of your venture. All of the options out there have some passionate believers and naysayers as I'm sure you've heard a few. Not all businesses are alike, and every situation calls for a different approach. We want to put some information out there that you should be aware of when seeking capital or bootstrapping your business.

 

Small Business Loans

So firstly, always remember that loans are debt. While debt in most cases is seen as a bad thing, it doesn’t mean that there aren't good reasons to take on debt. If your business is ready to take that leap, but you don’t quite have the capital to do so, a small business loan can be a great option for getting the financing you need.

 

When to take a loan

So if you need an influx of capital and your operations can't afford the changes you need to make a loan is sometimes your best option. Here are a few different cases where a loan is typically the best option.

Your business has expanded and you're getting too big for your own office. This growth is great, but now you've reached a plateau where you have positive revenue, but not enough to really get to the next level.

New equipment, for many industries, is costly and necessary to startup. And for those who have proven their business, purchasing upgraded equipment can improve your business offerings, product quality, or the efficiency in producing, it's also typically a no-brainer for financing. One of the major benefits of equipment financing is that in many cases the equipment itself can serve as collateral for a loan.

You need more inventory because your products are flying off the shelves. Inventory is many small businesses biggest expense. You need inventory to continue selling or making products so your business can operate.

 

Types of Loans

Small Business Administration 7(a) loans are one of the best options for financing. They’re guaranteed by the federal agency, allowing lenders to offer significantly more flexible terms and low-interest rates. The downside, however: It can be very tough to get a loan from the SBA.

Term Loans are a lump sum loan that you pay back with interest over an agreed upon set term. You can score low-cost, long-term loans from banks and online lenders.

A Line of Credit is a flexible way to borrow money instead of taking a loan in one lump sum. You can get credit for working capital in increments that you need, up to a pre-approved limit. While making incremental payments on a predetermined schedule.

 


Bootstrap Business

Bootstrapping is a noble pursuit, it's a great feeling to know that you did something huge and didn't need any financial help from anyone. The downside of bootstrapping is that what would cost you money in interest, could cost you way more in time and effort to achieve the same goal through steady growth and efficient use of capital. This isn't

When you bootstrap a small business, you are relying on personal means of funding the business like savings, credit cards, and family-and-friend loans, rather than seeking money through financial entities like banks or investors.

The goal of bootstrapping is the ideal of business, that you can create self-sustained growth where your expansion is funded through the businesses current operations. This growth cycle can work for a while, but typically there is a plateau.

 

Why Bootstrap

You can save time that you can then focus on the product and the business instead of seeking loans, talking to investors and continuing updates to make sure everything is on track.

Keep your business. When you take on investors, you typically exchange money for equity in the venture. This gives investors and voice in how you do things and possibly what the future of the business looks like. This isn't necessarily a bad thing, an investor can bring great ideas, connections and business expertise to the table. 

It's all on you to succeed, or to fail. There is no blaming others when you bootstrap you made it all happen, you did the hard things, and you get all of the glory.


Austin Local Loan Providers

Able Lending - Able Lending offers a myriad of options the help small businesses find and secure financing. One of the unique ways they structure loans is through a backer model where friends and family contribute a portion of the loan, allows small businesses to access more capital at lower rates.

Top Banks for SBA 7(a) loans - Wells Fargo, JPMorgan Chase, Regions Bank, BBVA, Plains Capital Bank, Live Oak Banking Co.

Square Capital - This is a great option for small and very small businesses that use Square Point-of-Sale. Square will actually pay back the loan automatically using a small percentage from each purchase.