Bootstrapping means funding a business without getting a formal business loan or investor. It’s the most common way to finance a startup.
It can be tricky for first-time business owners to get business loans or attract investors in their startup phase. They instead scrape together the money from savings or small unsecured personal loans.
The meaning of bootstrapping comes from the common saying ‘to pull yourself up by your bootstraps’ and is intended to convey the idea that an owner is being financially resourceful.
8 types of bootstrapping
- Personal savings – raiding the piggy bank.
- Unsecured personal loans – depending on your credit score, a bank may lend thousands without requiring any security.
- Credit cards – though they have high interest rates, cards can offer 10s of thousands in credit.
- Grants – many organisations give away thousands at a time to cause-related or minority-led businesses.
- Peer to peer lending – some websites introduce people who need money to private lenders who might just back your idea.
- Friends-and-family loans or investment – your personal network may contain people who can help you cover your startup or early operating expenses.
- Presales – you may be able to fund your startup by taking deposits for goods or services you promise to deliver at a later date.
- Crowdfunding – some websites allow you to pitch their community for startup funding. The funding might take the form of presales, equity (investors) or loans.
Why bootstrapping is so popular
Several studies by Xero have found that a majority of small businesses use bootstrap financing. This may be due to the challenges of getting loans, and the resourceful ways businesses can get started for less money.
Challenges of getting a loan
It’s difficult to get startup loans from a bank unless you can offer assets, such as a family home, as security. This is often seen as too risky, prompting many entrepreneurs to build a modest version of their business from a mix of savings and unsecured loans. It may get easier to attract external finance once the business is established and proven to be profitable.
Lower cost business models
Many startups are now also using technology to reduce their startup and operating costs. Ecommerce is a relatively low-cost entry into retail, while service providers are increasingly able to work from home offices and serve clients virtually. The lower startup and operating costs of these models means those business owners are less likely to need a large secured loan.
Risks of bootstrapping
While bootstrapping is often perceived as less risky, there are certainly downsides. Unsecured loans and credit cards often come with higher interest rates, which means debts grow faster. They also create confusion between your personal and business finances. Meanwhile, using personal savings can eat into retirement nest eggs. And friends-and-family loans can introduce financial tensions into personal relationships.
See related terms
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This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.
Bootstrapping ina maana ya kufadhili biashara bila kupata mkopo rasmi wa biashara au mwekezaji. Ni njia ya kawaida ya kufadhili kuanza. Inaweza kuwa ngumu kwa wamiliki wa biashara wa kwanza kupata mikopo ya biashara au kuvutia wawekezaji katika awamu yao ya kuanza. Badala yake, wao hukusanya pesa kutoka kwa akiba au mikopo midogo ya kibinafsi isiyo na dhamana. Maana ya bootstrapping inatokana na msemo wa kawaida "kujiinua kwa bootstraps yako" na inakusudiwa kuwasiliana na wazo kwamba mmiliki ni kuwa kifedha resourceful. 8 aina ya bootstrapping - Personal Savings <unk> Raiding the piggy bank. - Mikopo ya kibinafsi isiyo na dhamana - ikitegemea alama yako ya mkopo, benki inaweza kukopesha maelfu bila kuhitaji dhamana yoyote. - Kadi za mkopo <unk> ingawa zina viwango vya juu vya riba, kadi zinaweza kutoa makumi ya maelfu ya mkopo. - Msaada - mashirika mengi kutoa mbali maelfu kwa wakati mmoja kwa sababu zinazohusiana au biashara ndogo ndogo inayoongozwa. - Peer kwa peer kukopesha <unk> baadhi ya tovuti kuanzisha watu ambao wanahitaji fedha kwa wakopeshaji binafsi ambao inaweza tu nyuma wazo lako. - Mikopo ya marafiki na familia au uwekezaji <unk> mtandao wako wa kibinafsi unaweza kuwa na watu ambao wanaweza kukusaidia kufidia gharama zako za kuanza au za uendeshaji wa mapema. - Presales <unk> unaweza kuwa na uwezo wa kufadhili kuanza yako kwa kuchukua amana kwa ajili ya bidhaa au huduma wewe ahadi ya kutoa katika tarehe ya baadaye. - Crowdfunding <unk> baadhi ya tovuti kuruhusu wewe pitch jamii yao kwa ajili ya ufadhili wa kuanza. Fedha inaweza kuchukua fomu ya presales, equity (wawekezaji) au mikopo. Kwa nini Bootstrapping ni maarufu sana: Uchunguzi wa Xero unaonyesha kuwa biashara ndogo ndogo zinapata fedha za bootstrapping. Hii inaweza kuwa kutokana na changamoto za kupata mikopo, na njia za ujanja biashara inaweza kuanza kwa pesa kidogo. Matatizo ya kupata mkopo Ni vigumu kupata mikopo ya kuanza kutoka kwa benki isipokuwa unaweza kutoa mali, kama vile nyumba ya familia, kama usalama. Hii mara nyingi huonekana kuwa hatari sana, na kuwahimiza wajasiriamali wengi kujenga toleo la kawaida la biashara yao kutoka mchanganyiko wa akiba na mikopo isiyo na dhamana. Inaweza kuwa rahisi kuvutia fedha za nje mara moja biashara imeanzishwa na kuthibitishwa kuwa na faida. Mifano ya biashara ya gharama ya chini Startups nyingi sasa pia zinatumia teknolojia kupunguza gharama zao za kuanza na uendeshaji. Biashara ya mtandaoni ni njia ya bei nafuu ya kuingia kwenye rejareja, wakati watoa huduma wana uwezo wa kufanya kazi kutoka ofisi za nyumbani na kuwahudumia wateja kwa njia ya kawaida. Kwa sababu ya gharama za chini za kuanzisha na kuendesha biashara, ni rahisi kwa wamiliki wa biashara kupata mkopo mkubwa. Hatari za bootstrapping Wakati bootstrapping ni mara nyingi kuonekana kama hatari kidogo, kuna hakika downsides. Mikopo isiyo na dhamana na kadi za mkopo mara nyingi huja na viwango vya juu vya riba, ambayo inamaanisha madeni hukua haraka. Pia huchanganya kati ya fedha zako za kibinafsi na za kibiashara. Wakati huohuo, kutumia akiba ya kibinafsi kunaweza kuharibu pesa za kustaafu. Na mikopo ya marafiki na familia yaweza kuingiza mvutano wa kifedha katika mahusiano ya kibinafsi. "Kuchunguza ""Mafunzo ya Biashara"" ni njia ya kuunda biashara yako na kuifanya iwe na faida kubwa, na ni muhimu kwa wafanyabiashara wadogo." Maelezo yameandikwa kwa kuzingatia mahitaji yao. Ufafanuzi wa kina zaidi unaweza kupatikana katika vitabu vya uhasibu au kutoka kwa mtaalamu wa uhasibu. Xero haitoi ushauri wa uhasibu, kodi, biashara au kisheria.