Looking beyond banks

Ever more entrepreneurs are questioning the traditional model of borrowing to start a small business, and rely on their own resources.

Ever more entrepreneurs are questioning the traditional model of borrowing to start a small business, and rely on their own resources.

Bootstrapping avoids external finance in favour of getting clients to make advance payment for a service or product. This money is then used to buy what is needed to deliver the product.

Bootstrapping helps to cut costs while gradually expanding your business.

Many successful businesses start cheaply and end up as world-class businesses. Bill Gates and Paul Allen started Microsoft in a garage at Gates' home.

You could also opt for business-angel financing. Business-angel financing is a method where wealthy entrepreneurs provide capital in return for a portion of the equity.

They take a high risk in the hope of owning part of a growing and successful business. But, unlike traditional financiers, they do not demand security or exert day-to-day control over your business.

In 2003, D30 Lab, a design consultancy in London, patented D30, an innovative shock-absorbing material. The company wanted to manufacture and sell the product, but founder, Richard Palmer, needed finance.

He considered the amount of money he needed, the amount of collateral a finance company might need and the day-to-day involvement that investors would demand, then decided to look for angel finance.

Palmer needed no collateral and wanted to avoid day-to-day control by an investor. He updated his business plan to detail how the business would develop. He spelt out the benefits for both parties, what the funds would be used for and what would be achieved.

Palmer then decided to approach the British Business Angel Association for an introduction to business angels.

David Richards agreed to invest after the first meeting.

This proves that a well-prepared and targeted business plan works. Palmer's business plan was tailored to attract business-angel finance, which it did. - Entrepreneur.com by David Worrell, Pankaj Arora and Business Link

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