12 Jul BOOTSTRAPPING VS. FINANCING: HOW SHOULD YOU START YOUR
When you’re first starting your small business, you’ve got all the zeal in the world for your new product or service. No matter what your vision may be, at some point, you’re probably going to need some financial resources to truly bring your ideas to fruition. But what’s the best option: bootstrapping with your own cash or financing with a working capital loan?
Here are the pros and cons of each choice to make the best choice for your new business.
BOOTSTRAPPING: PROS AND CONS
The concept of bootstrapping is quite simple: you use your own cash as capital in the company to avoid taking on early debt. Ideally, you’ll pay yourself back as you go, and quickly earn profits that you can reinvest in your business.
On the plus side, bootstrapping helps keep you in control of your company. You don’t have investors to please or need to lose equity at a high percentage early on in the game. Plus, self-financing can keep you to your budget rather than getting tempted to overspend thanks to an investor or loan.
On the downside, since you have a set amount of cash to use, bootstrapping might hamper your ability to grow your business early on. It will likely take longer to scale because you can only take so many opportunities at a time. You can also jeopardize your financial security by using your own money to start your business.
Financing: Pros and Cons
Financing your new business with a working capital loan also comes with distinct advantages and disadvantages. The major pro is that you get one lump sum that you can use as you see fit. You can be a bit more strategic in how you roll out your company since you could have more capital at your disposal.
If you get an unsecured loan, you also don’t have to worry about draining your savings, since there’s no collateral attached. However, there is some risk when financing a business in the start-up phase. If you don’t succeed, you’re likely to still be liable for the loan. It’s really a matter of which risk you’re most comfortable with and when.
Ready for a working capital loan for your new business? Contact CMS Funding today.