Small Business Loans vs Bootstrapping

2.  Working capital is considered as the lifeblood of each small business. No entrepreneur can run, expand, and grow his small business without adequate working capital. The small businesses can fund their working capital needs through a number of options.  Small business owners can fund working capital needs through a variety of loan products – business loans, overdrafts and line of credit.  But the small business loans will require the enterprise to incur additional debt and expenses. At the same time, small business owners can meet working capital needs through bootstrapping without increasing debt and paying interest.

3.  They have option to choose from a number of bootstrapping techniques – borrowing money from friends/relatives, switching from sole proprietorship to partnership, avail trade credit, and deferring payment.  Each of these bootstrapping techniques enable small business owners to find working capital needs without increasing debt or expenses.  But the small business owners must understand the important differences between Small Business Loans vs Bootstrapping to pick the right working capital financing option.

4. Small Business Loans vs Bootstrapping: Understanding Important Differences between Small Business Loans and Bootstrapping Increase in Debt and Expenses  As noted earlier, the bootstrapping entrepreneurs to fund working capital needs without incurring additional expenses.  The small business owners are not required to pay interest or EMIs.  On the other hand, the small business loans will require the borrower to pay interest at a predetermined rate.  The rate of interest on small business even differ from one lending institution to another. techniques help

5. Credit Score and Credit History  Bootstrapping regardless of their personal credit score or credit history. But no entrepreneur can avail small business loan products without maintaining a good credit score and establishing credit history. They need to meet the business loan eligibility criteria set by the lending institution for the specific small business loan product. Impact on Cash Flow Position  An entrepreneur has option to choose from a variety of small business loans. The small business loan products differ from each other in the categories of interest rate and repayment period. But the entrepreneur has to explore ways to repay the debt without impacting his business’s cash flow position. enables entrepreneurs to avail funds

6. Collateral Requirement  Normally, lending institutions provide both secured and unsecured business loans. But often lending institutions do not provide unsecured credit loans to startups and recently- started businesses. Hence, small business owners have to use their personal or business assets as collateral to avail credit. The bootstrapping techniques do not require entrepreneurs to use any asset as collateral. Access to Credit  Often entrepreneurs have to put extra time and effort to raise working capital through bootstrapping techniques. They cannot leverage bootstrapping to fund immediate working capital needs. But the new age lending institutions leverage financial technologies to provide credit within 48 hours.

7. Amount of Working Capital  The working capital needs differ from one enterprise to another.  Some enterprises need additional working capital during a specific season, whereas others need additional working capital to facilitate modernization, expansion, or growth.  Small business owners often find it challenging to raise huge amount of funds through bootstrapping.  But they can easily meet high working capital needs by choosing the right small business loan product.

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