When Shouldn’t You Get A Business Loan (Compared To When You Should)

business loan should vs shouldnt

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There are many different reasons for sourcing business finance — for example, we recently sourced emergency same-day funding for a business owner whose major customer was late paying a substantial bill, which jeopardised the business owner’s ability to meet their expenses. Thankfully, in this situation, the finance solution we arrived at was able to quickly and effectively prop the business owner’s cash flow up until the customer was able to make full payment.

In this situation, emergency same-day funding was perfectly suited to our client. However, it wouldn’t have been ideal for every business, and the same goes for other business loans, too — they are certainly not one-size-fits-all.

With so many loan options out there, let’s look at when you shouldn’t get a business loan (compared to when you should).

When you should think twice about business loans

Business financing is certainly not uncommon; in fact, most businesses in Australia, particularly small businesses, will need to lend money at some point. Most businesses look to borrow money to acquire business assets or spur growth to meet their business goals.

Timing can be everything though, so if you’ve thought about when the right time might be to take out a business loan, here are some common times where you should think twice:

1. Your business has very small margins

Profit margins underpin a business’ profitability, so it should come as little surprise to you that a business with minuscule margins may not be in the right financial position to add a further expense or financial commitment to the balance sheet. Perhaps obviously, if the cost of business finance is going to exceed the margin that you make on the services or products you sell, you should seriously consider whether this is going to be in your business’ best interest (even if you’ve already got an approval letter).

2. You’re currently loaded with debt

To repay your debt quicker, streamline your administration and smooth out cash flows, it’s understandable that you might consider submitting a business loan application to consolidate your debt. Debt consolidations can work wonders; however, if you’re already struggling to meet your repayments or you’re at your maximum borrowing capacity, submitting another application for additional finance might not be the most financially responsible decision.

Even in the case of debt consolidation, it’s always a good idea to talk to business lending specialists, such as darkhorsefinancial.com.au, first — particularly if your existing debt is attached to highly leveraged assets or your revenue is drying up.

3. Structural flaws exist in your business

If you plan to watch your business grow, then you need a business plan! Sometimes, if there are existing structural flaws in your business, or you haven’t evolved your business plan as your business has grown, then taking out a business loan could spell trouble. Why, you might ask? Well, if your existing business plan is leaving holes in your revenue, and you’re looking to borrow money to cover the shortfall, it could make your financial situation worse.

Business loans for restructuring a business can certainly work well. However, the owner of the business should look to set their plan up first, which would lay out how new revenue is to be achieved.

4. You’re heading into an off-season

If there is change on your horizon or any uncertainty on how you could confidently meet your business loan repayments, then it could pay to think twice before jumping into any more business loans. Many industries in Australia are seasonal, and may require finance to tide them over. It’s essential to work with a lending expert (like us).

How to assess if a small business loan is the right move for your business

Your business data is a great way to remove your emotions from your decision and help drive your decision around financing options and whether you should take out a small business loan.


Every credit product you hold under your business adds up. Assessing your existing debt level should be a major starting point when looking to take on a small business loan.

Cash flow

By virtue, business loans are going to affect your cash flow. Don’t just rely on your business banking or bank statements; take a good look at your cash flow statements to understand your capacity to meet your repayments before you apply for a business loan. Your cash flow statement, amongst other financial statements for your business, will not only guide your decision but can demonstrate to financial institutions that you can successfully manage your cash flow.


Offering some collateral for business loans can take the pressure off your interest rate and also increase your chances of approval (as well as speed up the application process). Depending on what the business loan is for, you can look to use physical assets, such as commercial or residential property, as security against the loan. Most lenders will look favourably at commercial real estate or other assets as it provides a fallback if you default on your loan.

Your accounts receivable ledger, commercial property, residential property, and even your inventory are all assets that can be used to back a secured loan.

top tip: Accounts receivables generally involve a slightly longer approval process when you apply for a business invoice financing solution (as sometimes value assessments are needed) however, unlocking the money sitting in your outstanding invoices can represent a fantastic solution vs taking out an unsecured loan!

Interest rates & fees

Consider how a change in interest rates might affect your affordability. Not every lender will offer small business loans with a fixed interest rate. A variable interest rate is subject to change over the loan term, which can either go in your favour or against it.

On top of the interest rate consideration, look at what service fees, establishment or application fees might be charged. These can make a big difference in knowing if a business loan is the right move for your business.

Lending criteria

You’ve probably seen time and time again, the disclaimer that ‘lending criteria apply’. An easy way to consider if a business loan is right for you is to check if you fit the criteria. To find the right loan type out of the many small business loans available, you should take into account your operational cycles, your capacity to repay the loan and other commitments.

Did you know: THAT darkhorsefinancial.com.au is different to an online lender working under an Australian Credit Licence?

Business owners often seek out darkhorsefinancial.com.au because their existing finance is far more expensive than it should be, or it’s come to their attention that it might not be the best fit for their financial needs. We go above and beyond online lenders; we look to help Aussie businesses face the challenges of ill-fitted finance to find the right business loan option at the best possible interest rate.

At darkhorsefinancial.com.au, we understand how businesses can end up with the wrong loan option for their needs; when you’re under pressure, saying yes to any finance approval might seem like a good solution — but this isn’t always the case.

Whether it’s unsecured lending, invoice financing, trade finance or private lending, we will work with you to find a solution that enables your business to grow, with a defined exit strategy for peace of mind.

Request a call from our dedicated team to find out if it’s the right time for your business to apply for a business loan.

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