The Risks of Bootstrap Financing

Bootstrap financing is building a business with little, or no outside capital. Many successful businesses have used this business model to get started. While there is some merit, it does not come without risks. Here are a few things that you should consider before bootstrapping it:

Increased Stress

When you bootstrap a new business, it usually requires that you keep your day job. A new business venture will not turn a profit right away, so you will need some cash flow coming in. When you burn the candle at both ends you will face a lot of increased stress. Your personal life and business may suffer the consequences.  You will lose sleep, have less time to relax and generally have a lot more on your plate. 

Tying Up Resources

Many times, new business owners will help finance the project with a home-equity loan or some other equity financing. These financial loans can tie up their personal assets and belongings. Their personal assets are tied into the success of the new venture. When your personal success is riding on the success of the business, it can add a lot of stress. If your business goes under, you might lose your house and your possessions.

Personal Savings 

When you start a new business venture, it's pretty much a given that you will be using your personal savings to get started. There is a good chance that it has taken you years to save up the amount of money you have and investing it should not be taken lightly. Make sure that you have a winner on your hands before parting with your hard-earned savings. 

Personal Loans

Many entrepreneurs will borrow part of the money they need from friends or family members. Family members are usually a willing source for funds, but it is not always in the best interest of both parties to get involved. Borrowing money from a family member or friend can cause unneeded stress on the relationship. Many times the strain on the relationship will never recover. If the prospective business venture fails, the money might never be recovered. The family member may be adversely affected financially and the resent that you may face from the family member is not worth it.

Partnership Problems

Forming a partnership is a good way to raise the money that you need for a new business. You come up with the idea for the business and your partner comes up with most of the money.

While it may work in some cases, choosing a bad partner has hurt more than one business venture in the past. Building a successful business is about trust and if you do not fully trust your partner it could be detrimental to the business. Many times, businesses are dissolved because of poor relationships between business partners. 

Fear

Starting a new business is bound to create an abundance of fear within you. If you can't take the pressure, financing for business might be a bad idea. The weight of the situation can feel like a lot to bear if you have never done it before. Getting loans for business should not be taken lightly. The fear that comes with the investment can paralyze many new investors.