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Business borrowing guide stage 6: Loans for businesses in decline

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What financing options do you have if your business is heading into the red?

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.

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    How do I know when my business is in decline?

    A business in decline is one that is experiencing consistent decreasing revenue and customers. This decline may cause cash flow fluctuations and could require intervention to encourage growth.

    Financing 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 instill 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.

    Types of financing 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:

    Type Typical borrowing amount Advantages
    Line of credit $10,000–$1,000,000
    • Only use as much as you need
    • Pay interest on your balance, not your credit limit
    • Generous loan terms (usually up to 25 years)
    Term loan $5,000–$5,000,000
    • Receive a lump sum and pay it off over a set term
    • Regular repayments can help you to budget
    Invoice financing or factoring Up to 80% of the invoice amount
    • Assist with cash flow
    • No need to wait for invoice payment from customer
    Credit cards $500–$250,000
    • Pay the minimum balance or pay it off in full if you can
    • High credit limits are available

    Eligibility criteria you’ll need to meet for top business lenders

    Since your business is in decline, you may be viewed as a higher risk borrower. Be sure to review the requirements for the lender you’re interested in before applying.

    Business lender Requirements Read the full review
    National Business Capital Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000. More
    SmartBiz SBA Loans 650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years More
    LendingClub Business Loans 12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better More
    Able Lending Business must be in operation for at least one year, bring in at least $50,000 in annual revenue, must have a personal credit score of 600 or higher, no personal bankruptcy in the past 12 months. More
    Kabbage 1+ years in business, $50,000+ annual revenue or $4,200+ monthly revenue over last 3 months More
    Swift Capital Business Advance You must be an American citizen or a permanent resident of the US with a personal FICO score of 500 or higher. Your business must be at least 1 year old and making at least $100,000 in annual revenue. More
    OnDeck 500+ personal credit score, 1+ years in business, $100,000+ annual revenue More

    How you can compare business loans

    Not sure which business loan is right for you? Consider these features:

    • 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 of approval, but many 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.

    The financing 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.

    Four 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 organized my documentation?

    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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