You may have chosen the right type of business to start but may find it difficult to arrange for the required funds so that it can successfully survive through the initial years of incubation. Financing a business proficiently is much more important than choosing the right business and it is this critical step and crucial stage where most businesses especially the startups fail to survive and continue operating. Even for the established businesses arranging for funds for turning the expansion plans into reality is crucial.

Last year appeared to be the year for expansion for the small businesses given the following facts:

• The corporate tax rates were slashed significantly
• The depreciation rules were accelerated
• More encouragement provided for capital investment and
• The economy showed significant signs of sustainability and strength.

However, for expanding a business you will require lots of money and it is here the most important question arises: which is the right type of loan or funding option to choose that will suit your affordability as well as your business needs.

To get the right answer to this question you should start right from the basic which is by looking at some of the most common debt options which are:

• Traditional bank loans that are popular but hard to get especially for small business startups
• SBA guaranteed debt which is most popular but may not be the best fit for you as it is in many cases and
• Other forms of non-bank lending from different private and online money lending sources.

In most of the times the conventional debt is considered to be proven and useful for business operation or expansion. However, to obtain these loans you will also need to consider and honestly and carefully assess the five C’s of business that is:

• Capital
• Collateral
• Conditions
• Creditworthiness and
• Cash flow.

These are the most significant factors that most of the traditional banks use to decide whether or not a particular business qualifies for such bank debt.

These five Cs are easy for an established business to demonstrate and get a conventional bank loan but for small business and especially for a startup it is not that smooth. However, if you happen to get such a loan then you will get attractive rates as well as pay the lowest overall cost for borrowing.

The SBA loans

You may also consider the SBA loans though it will need much more than the five C’s. You will not only need to overcome the weakness in collateral but will also need the following along with it:

• A longer term so that you can make and afford the payments and
• A historic ability to cash flow your debt if you are expanding beyond this ability.

However, if you can avail the US Small Business Administration-backed loan with a collateral shortfall and get a term up to 10 years as opposed to the conventional loans that have a term typically ranging from three to five years, you can make better cash flow calculations.

With your conditions improved, these SBA-backed loans may also help a bank allow you to have a loan even if you had a storied past and are in a riskier industry. However, there are a few requirements to avail such a loan. These are:

• You must have a strong business plan
• You must show how the funds received will be used
• You must show how you plan to generate the desired cash flow to repay the loan.

If you do not have such a business plan you can, however, seek assistance from the Small Business Development Centers or SCORE Association chapters.

The plans should be precise and follow the set of standards that include:

• These plans should start with three-year details of financial projections.
• It must also mention the assumptions made while creating these projections.
• If the business finance is different from the usual industry norms such as lower operating cost or cost of goods sold, the plan should also suggest the ways in which the business plans to achieve such projections.
• If there was anything unusual in the past such as one-time expenses then the business plan should also mention it along with a detailed explanation of the same.

Apart from the precise plan, it is also required that you approach a bank for such loans that is familiar with your specific type of business and industry as the bank will understand the specific needs for your business in a better way.

Factoring and other debt options

If you have weaker Cs but good receivables you may choose to factor as an option. This is the process in which you sell the accounts receivable of your firm to a third party at a reduced price. Though factoring is high-cost debt it will make a lot of sense and prove to be useful if you are into a high-growth business and need funds quickly to grab a new business opportunity that you feel is profitable enough to create more cash flow than your accounts receivable.

This will help you to repay your debt and not lose on cashing on the best opportunity available. However, you will need to consider two specific things such as:

• Enforceability and validity of the accounts receivables and
• The financial strength of the business clients and their ability to pay when due.

As for the other options to consider if you do not qualify for any type of loan but still need money for your business you can consider:

• Micro-lenders who are actually non-bank lenders and non-profits that offers both public and private funding.
• You can also try your personal credit to get an auto loan and lease
• Avail a credit card debt
• Get a home equity line of creditor
• Take a loan guaranteed by any other income such as salary of your spouse or a guarantee from any other family member.

However, all these have its characteristic pros and cons and therefore you are advised to consult with a counselor to take a second opinion and make the right choice.