Guide to loans for businesses in decline
What financing options do you have if your business is heading into the red?
Key takeaways
- Identify whether your business is in true decline or just managing temporary cash flow issues before deciding what type of finance to pursue.
- Look for short-term and flexible funding options like invoice financing or lines of credit that can stabilise cash flow without overwhelming repayments.
- Compare lenders on eligibility criteria and total loan costs-not just interest rates-to ensure the funding supports recovery rather than deepening financial strain.
It's almost impossible to maintain consistent periods of high growth. Many businesses experience lulls in revenue or cash flow fluctuations, but if your numbers are starting to go the wrong way your business may be declining. Stimulating growth should be your number one priority, and applying for finance may allow you to do this. Find out what financing options you have in this guide.
When is a business in decline?
While every business may experience downturns, a business in decline is one that is experiencing consistent decreasing revenue and customers. This decline will not be consistent with the cash flow fluctuations of a business and will require intervention from businesses to encourage growth.
Funding needs that are common for businesses in decline
Declining businesses have varied funding needs, which can include the following:
- Innovate the business product or service. Declining businesses tend to see a sharp drop in take-up of their product/s or service. By innovating the source of profit, whether it be by developing a new product, diversifying the offering or changing the existing service, it can instil growth back into the business.
- Cash flow assistance. If revenue is lower, the business's cash flow is likely to be under pressure. Declining businesses may be looking for assistance with cash flow issues, whether they be for the long or short term.
- Human resources. Businesses that are declining may have issues with human resources, which can include needing to reduce employee numbers, consolidate teams or hire additional help in key growth areas.
- External advice/support. It can be a good idea to seek external advice or support if internal strategies are failing. However, experts cost money. If you don't want to put further strain on your cash flow you may consider finance to assist you with this.
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How we picked these
Finder Score for business loans
We assess over 150 business loan products for their rates, fees and important features, assigning them a score out of 10.
The types of finance that may be available
There are three main types of finance: debt finance, equity finance and internal funds. As internal funds tend to be limited in declining businesses and equity finance will be extremely difficult to access, the following types of debt finance can be considered:
| Loan type | Loan amount | Features |
|---|---|---|
| Line of credit | $10,000–$1,000,000 |
|
| Term loan | $10,000–$500,000 |
|
| Business overdraft | $10,000–$100,000,000 |
|
| Credit cards | $500–$100,000+ |
|
| Invoice financing | 80% of the invoice amount |
|
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How we picked these
Finder Score for business loans
We assess over 150 business loan products for their rates, fees and important features, assigning them a score out of 10.
How you can compare business loans
Not sure what type of business loan is right for you? By comparing business loans you can select the type of finance that best suits your needs.
- Loan amount. Business lenders generally have a minimum and maximum amount that you can borrow, so make sure the loan you need falls within that range. Keep in mind that your business may not be eligible for the loan amount you apply for.
- Flexibility. Can you borrow more over the course of the loan term if you need to? Can you pay back the funds earlier if you're able to? Do the repayments fit in with your business's cash flow and budget?
- Repayment affordability. How much will your repayments be and can your business afford it? If your business will struggle to manage the repayments then consider borrowing a lower amount or extending the loan terms.
- Turnaround time. Some non-traditional business lenders can have your funds to you within 24–48 hours, but other lenders may take longer. Make sure you can receive the funds when you need them.
- Cost of the loan. Loan costs vary and are explained in more detail below, but make sure the interest rates and fees are competitive when compared to similar loan offerings.
Useful financial guides for businesses in decline
Will your business be eligible for a loan?
| Business lender | Required minimum revenue | Other criteria that must be met | Find out more |
|---|---|---|---|
| Banjo Loans | $500,000 per year |
| More |
| Business Fuel Loans | $10,000 per month |
| More |
| Capify | $10,000 per month |
| More |
| NAB | No minimum |
| More |
| Max Funding | No minimum |
| More |
| MiFinance | $400 per week (personal income) |
| |
| Moula | $5,000 per month |
| More |
| OnDeck | $100,000 per year |
| More |
| Prospa | No minimum |
| More |
| ThinCats | No minimum |
| More |
The costs to consider
It's more than just the interest rate you need to consider. Here are some of the costs to expect with a business loan:
- Interest rate. Check whether the rate is fixed or variable and what type it is. For example, is it a factor rate? You should also check the comparison rate to get a better idea of the overall cost of the loan.
- Upfront fees. These may be called application or loan origination fees, but work in essentially the same way. The fee will be added to your repayment amount once you've been approved for the loan.
- Ongoing fees. Check if any weekly, monthly or annual fees are charged with the loan. You may also have to pay a direct debit fee or something similar that will increase the cost of your loan.
- Default expenses. If your repayment is late, payment is missed or you default on the loan you will be charged various fees relating to enforcement. Get in contact with your lender if you think you'll have trouble repaying the loan.
Questions to ask before you apply
Can my business afford the loan?
This is the most important question to ask and one you need to determine before you apply for the loan.
Is the loan affordability based on current profits or projected ones?
A business in decline has to be careful with profit projections, especially when it comes to being able to afford a loan. If you're relying on projected profit uplifts you may want to consider a more flexible loan that allows you to repay the minimum amount on the balance, such as a business credit card or line of credit.
Have I organised my application?
Some newer lenders may base their decision on your business's revenue and other similar financial data. However, if you're applying with a bank you will need business plans and cash flow projections. Make sure you've checked what you need before you start the application and ensure your business is in the best position to be approved.
What am I using the funds for?
Have a plan for every dollar of the loan amount should you be approved. This will not only help you with projections for your business but may also help you be approved.
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