When you are racking your brains, trying to think of a way to raise money for your business, one of the basic options you should consider is bootstrapping. Bootstrapping means to use your own funds to finance your business. This is an extremely popular method of funding as you can use the resources of your company to grow your business or meet the running expenses without taking an external loan.

Bootstrapping is popular as it is one of the cheapest options available to a business owner while raising funds. Unused resources can be used optimally just by managing them better. You do not need to depend on anyone else for raising capital. You are simply reinvesting your current earnings to fund your growth plans.

Bootstrapping has a number of advantages. The value of your business will be greater as you would have borrowed less capital from external sources and your equity pay-outs would be less. You would not need to pay a high rate of interest on money you have borrowed. To external lenders such as banks, you would appear to be financially strong when the time comes for you to approach them.

Bootstrap financing is preferred by many small businesses as they are not answerable to anyone about the way they operate their business. When firms take loans from external sources like venture capitalists or banks, they are subject to monitoring and regulation. Venture capitalists have a say in the way a firm where they have an investment, would operate. Most entrepreneurs resent this intrusion as they feel its stifles their creativity. Entrepreneurs are also more comfortable keeping the control of the business in their own hands. There is also less danger of a lender taking over the company on the pretext of looking after its investment.

This form of financing has been favored by more than 90 per cent of technology based companies. This is because small start-up firms who are looking for loans of less than $5 million in value are rarely able to get funding from venture capitalists. Even if the start-up has a brilliant idea, the high cost of monitoring the investment makes it not viable for a venture capitalist to invest in it. Therefore, bootstrapping allows entrepreneurs the opportunity to get their firms up and running and also enables them to position the firm such that they can look for equity capital from external investors at a later date.