An Empirical Investigation of Bootstrap Financing Among Small Firms

This study examines the use of 27 bootstrap financing methods among a sample of 91 small firms. Owners\u27 rankings of the importance suggested that bootstrap financing was not central to their firms \u27financing strategy. Owners who had greater difficulty of raising capital ranked bootstrap financing methods that (I) slowed disbursements, (2) generated cash, and (3) subsidized operations as being more important than owners who experienced less difficulty in raising capital. Owners who believed their firms were more undercapitalized ranked bootstrap financing methods that (I) slowed disbursements. (2) generated cash, and (3) minimized investment as being more important than owners who experienced less difficulty in raising capital. The use of bootstrap financing was also directly related to the risk of the firm. The results can be used by owners of small firms, consultants, and support agencies that provide assistance to small firms in areas of financial planning and capital acquisition. Understanding the use and availability of all sources of capital will enable owners to obtain a comprehensive understanding of capital alternatives and financial strategies. Agencies that provide support services can use the information to better assist small firms in developing financing strategies. This information could easily be built into training programs for both new and existing small businesses