Bootstrap Financing for Small Businesses

Small business entrepreneurs can take advantage of bootstrap financing. It is the leveraging of personal resources including debt and the reinvestment of the net profits from a business venture. If entrepreneurs do not have capital through traditional means, bootstrap financing acts as a means for attaining the financing for starting or expanding a small business. The entrepreneur can usually create funding from a few hundred dollars to $25,000. Sources of bootstrap financing include:

Home equity loans: You can get around 80 percent of the equity in a house. Therefore, if you have access to a home-equity line of credit, a second mortgage, or the refinancing of an original mortgage, you can use it as a means of financing. The risk is that you can lose your home if you cannot repay the loan.

Customers: Another means of bootstrap financing is in the form of advance payments from your customers.

Life insurance: You can borrow against your cash-value life insurance. You may be able to get good interest rates.

Credit unions: As a small business owner, you can get a personal, unsecured loan from a credit union.

Micro-loans: You can contact entrepreneurial non-profits organizations, for these types of loans that usually do not exceed $25,000.

Retirement plans: If you still have a job, you might be able to borrow from a 401(K) plan. Read the rules first!

Broker loans: You can always turn to your local investment broker for a loan based on the balance in your security account.

Retirement funds: An option would be to cash out an IRA or take money from a Keogh account. This would only work if you can pay the immediate income tax on the withdrawn funds and afford the 10 percent penalty if you are under 59 ½.

Consumer Finance Loans: These are not necessarily the best option because of the high rates.

Credit Cards: Use them carefully-the interest rates may get you in trouble. They are, nonetheless, forms of bootstrap financing.