Bootstrap financing and owners’ perceptions of their business constraints and opportunities

Abstract

In this paper we present the results of a regional survey of small business entrepreneurs that asked about the use of and motivation for bootstrap financing – employing resources other than traditional financing to fund operations. Extending the work of Winborg and Landstrom (2000) our results indicate that perceived risk is highly associated with owners’ assessment of the importance of bootstrap financing techniques. We also find that owners who see themselves as having limited ability are more likely to use private owner financing techniques that tend to squeeze all available funds from the owner and those close to him/her. Alternatively, bootstrap financing techniques involving the delay of payments are preferred when risk levels appear highest, while owners in business environments with the most opportunity are more likely to try to minimize accounts receivable. The results of this research can be used by consultants and agencies that assist small firms by acquainting owners with the myriad techniques for funding their companies as well as understanding the factors that often motivate the use of particular techniques. Owners should recognize that they should explore various funding alternatives rather than simply using what they are familiar with or what is readily available.