You may want to start your new business. Or you may want to expand it. However, those big plans of yours could have a big stumbling block; lack of funds. This may leave you to weigh your alternatives viz a viz bootstrapping vs loans: better funding options 
for businesses. Read on to see the advantages of various funding options for businesses.
What does bootstrapping mean?
Bootstrapping describes the process where a business owner starts or expands a business using personal finances and revenue from the business. This option differs from the option where the business owner uses other funding options like funding from friends and family, angel investors, and venture capital firms.
Bootstrapping techniques
Some business owners decide to use their personal savings to fund the business. Subsequently, they use the revenue to fund the business.
Other businesses bootstrap by avoiding any form of investment until they are crucial. Such businesses maintain a minimal working space for employees. Still, other businesses continue buying supplies only from companies giving them discounts or some barter system.
Advantages of bootstrapping
You retain business ownership
First, you retain 100% business equity ownership. Similarly, you do not incur debts. More so, you get the freedom to make your own executive decisions.
Better spending culture
Second, you build better spending habits. Since you are relying on the resources of your business, you are more conscious of your spending.
No debts or loans to pay back
Third, you do not have to worry about monthly payments or extensive loans. Indeed, they can be worrisome when you have business problems.
Disadvantages of bootstrapping
However, bootstrapping needs lots of discipline. For instance, you have to pay attention to budgeting and its requirements.
Also, the risk that all your hard work may not pay off is high. For example,
Similarly, you bear sole liability if the business fails or has economic challenges. You may end up having all obligations when natural disasters or calamities result in significant losses.
Besides, when you consider the big picture, bootstrapping may hamper business growth. How? Demands may possibly exceed production capacity. As such, your customers have to patronize alternative businesses. As a result, you do not explore all possibilities for growth.
Sources for business loans
There are great financing options for your business. They are of use to startups and small businesses. They include the following options:
- Bank loans
- Community development finance institutions
- Venture capitalists
- Partner financing
- Angel investors
- Invoice financing or factoring
- Crowdfunding
- Grants
- Peer-to-peer or marketplace lending
- Convertible debt
- Merchant cash advances
- Microloans
Advantages of loans
First, your business can benefit when strong investor partners refer you to new clients, media, and other stakeholders.
Second, you may gain more market credibility. After all, some of the goodwill already generated by your strategic investor may rub off on your brand.
Third, you could have access to more infrastructure. For instance, your larger partner may have already established marketing, finance, or IT teams.
Besides, your business may gain from their business experience if they join your board.
Similarly, you may opt for investment relations involving relatively hands-off partnerships. That is to say, your strategic partners are likely less involved in business operations. An occasional update is enough for them. Thus, you gain from their investment and largely retain business autonomy.
In the same vein, some loan options like equity funding do not require interest payments. They may also not incur any liability.
Disadvantages of loans
First, many lending bodies such as banks have high loan qualification standards and protocols. They can even be time-consuming.
Second, some loan investment options require some equity share from your business. Clearly, this reduces your ownership of the business.
Third, the release of equity shares may at some point extend to other rights. For example, the investors may request board seats or greater involvement in business decisions.
The bottom line
When considering bootstrapping vs loans: Better funding options for businesses, you must first examine your business. Bootstrapping may work for one business and fail for another. Perhaps, you may consult financial professionals. Surely, you need to choose the right investor. There are lots of advantages to gain. All the same, implementing the right financing options increases the long-term potential for the success of your business.
