Small businesses have a high rate risk of failure up to 70% (Osteryoung 2003). For this reason most small business owners do not get the required funds for raising capital to start, operate or expand their ventures. New entrepreneurs realize that though their business ideas are good but the chances or risks involved in succeeding is high. Raising money for running the business involves losses at the beginning before the entrepreneur can achieve break even or profit. For this reason financial experts consider the option of equity financing for these new ventures. However, equity investors demand high rate of returns but the plus point is that they are not repayable. Alternatively, there is the option of bootstrap financing (Osteryoung 2003).

This refers to equity financing generated from friends, relative and the entrepreneur’s private funds. Since most of these "investors" are familiar with the mode of business and trust the entrepreneur to succeed without much demand for returns, the entrepreneur can concentrate on business development and strategies for achieving business goals. Bootstrap finance however should be limited to initial equity financing or to expand current supply as the investors though willing to provide the funds they are still not keen on absorbing the risks. Instead they vie for higher rates of return just as the venture capitalists. For this reason bootstrap finance should be considered as a source for additional supply of capital but it should not be taken as the major source of equity capital. (Osteryoung 2003).