Entrepreneurship & Small Business

Assignment: Bootstrap Financing

Submitted to: Dr Mohammad Ali Shamim

Submitted by: Fatima Haroon (10704)

Section: D April 4, 2013

What is Bootstrap financing?

Bootstrap financing is an alternative means to raise outside capital for a new business venture. This approach is particularly important to start up and in early years of the venture when capital from debt financing or from equity financing is more expensive. Bootstrap financing growing a business more or less organically, without using significant outside sources of capital. Bootstrap entrepreneurs avoid selling stock to raise capital (equity) and significant long-term borrowing (debt finance). Bootstrap financing will engage using nearly all personal resources, borrowing from friends and family, barter, credit and shipment inventory from suppliers, adamant cost reduction strategies, purchasing second hand equipment, leasing real estate and property, plus at the close supervision of the cash flows of the business.

Discuss the Factors which suggest it?

There are many factors that lead an organization towards bootstrap financing. These are as follows: 1. The reason behind this is that, an entrepreneur wants to increase the worth of his organization by borrowing less debt and carrying its own money which gives an organization more authority and stable. 2. Another thing which an entrepreneur wants to avoid is paying huge amount of interest expense 3. This will also led the entrepreneur to concentrate on the immediate operations of the business and worry less about the borrowed money.

4. Having a strong position with less debt and loans always puts a good impression on to other stakeholders and makes them think that the organization is self-sufficient. 5. This will ultimately raise the profits which can be retained and re-invested to expand further.

Why should an entrepreneur consider it?

Every aspect has a little or the supplementary setback or countless disadvantages. One of the disadvantages of this way is that, countless periods the association does not an external financing to finance the development because if an opportunist relies on his own resources, next competitors could be able to vanquish him swiftly and the development of the association can be slow. To enhance that pace and retain up the contest, opportunist has to seize advance or each supplementary external financing so that they rise companys worth and finance development as swiftly as possible. One more setback is that, if the company flounder, the finished of the entrepreneurs money will sink that he should not ever want. But he ought to ponder it to ponder on companys core procedure, to sense himself as a boss of the firm and additionally to sense self-sufficient. This will automatically appeal lots of lenders.