Bootstrapping: Finance Your Startup From the Ground Up

Lot’s of people tell me that they have great ideas for a startup, but don’t know how to obtain investment funding to get the business off the ground.  Indeed, these days it’s hard to qualify for a bank loan and private equity investors with an open pocket are hard to come by.  Even when money is rolling, investors of all varieties are more likely to invest in startups and businesses that have generated real, hard numbers that verify their business model predictions.

This leaves many startup owners in a catch-22: to startup one requires capital, but to obtain capital one requires business performance data.  Not to fret, for the most part, we all play by the same rules.  The issue isn’t how to obtain private equity funding, but rather how to startup without private equity funding.  This is where bootstrapping your startup comes in.

Bootstrapped startups take whatever money their owners can raise from friends, family, and their own pockets, and use that as the basis for the company’s financial foundation.  It situations where very little money can be raised through the channels, bootstrappers may opt to take on personal credit card debt to help get the company off the ground.  Regardless of how its done, bootstrappers have one common goal: launch the startup and grow it to the point of profit generation for as little money as possible.

What Business Loan Lenders Look For

Obtaining a loan for your business isn’t a trivial task.  Lenders have a finite money reserve, so they’re not going to dole it out without careful consideration.  One big mistake small business owners tend to make is failing to consider what loan lenders look for or require from their applicants.

To help expose and prevent this error, I’ve compiled a list of common items load lenders look for.  This isn’t a universal compilation - some lenders won’t look for all items and other lenders will look for more.  That said, this is a fair cross section of items one should be prepared to provide when asking a lender for a business loan.  Without further ado:

Understanding Small Business Loan Interest Rates

Overview of Interest Rates

During the last 12 months, I have repeatedly heard the terms, ZIRP, Fed Funds Rate, and Discount Rate.  Determined to learn more about economics, and hence these terms, I purchased a book on Macroeconomics and began learning about the impact these terms have on the broader economy and small business loans.

The Fed Funds Rate and the Discount Rate are interest rates which are under the control of the Federal Reserve Bank.   They are instruments of monetary policy designed to provide the Federal Reserve with control over the supply of money in the economy.   The Discount Rate is the interest rate the Federal Reserve charges a commercial bank when the banks needs to borrow money to meet immediate demands for capital.  The Federal Funds Rate is the rate that banks are allowed to charge one another on overnight loans to meet reserve ratio requirements.   ZIRP, or Zero-Interest-Rate Policy, is when the Federal Reserve effectively sets the Discount Rate to 0%.

How to Get a Small Business Loan With Bad Credit

Small business loans provide many opportunities.  From acting as startup capital to serving as a source of extra cash during a dry time, small business loans can be a saving grace for many businesses.  However, not all small business owners qualify; small business loans are difficult to obtain for those individuals with bad credit.  But all is not lost, for if you’ve got bad credit, there are a few tricks you can try to obtain a small business loan.  Here are three tricks of the trade.

Six Ways to Increase Financing for Start-up Businesses

One of the great challenges of the current economy is getting investors to trade their capital for equity in a small business start up.  Small businesses are high risk, high return investments and when the economy is uncertain, investors tend to shy away from risk.  But if there is to be any hope of getting out of the hole, then small business startup financing needs a jump start.

In their book “Angel Investing: Matching start-up funds with start-up companies,” Mark Van Osnabrugge and Robert J. Robinson discuss six steps to increase investment financing in start up businesses.  They argue that there are billions of dollars in the economy that could be used as start up capital, if only the holders of that capital (investors) and start ups could better identify their mutual opportunity.  Let’s break down each and discuss their feasibility.

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