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PROBLEM:  Declining Gross Sales


One of the most common reasons for being turned down by a bank today, is

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because the small business has had a decline in gross sales over the last two to three years (Your banker may have described this as "declining trends").   


(This is just one page of the report, scroll below to see other SOLUTIONS.)

Due to the economy, most businesses throughout the nation, have had a drop in sales in 2009 and 2008 compared to 2007 and 2006.  For most lenders, a drop in gross revenue is an immediate red flag and or a straight decline in financing.  Most lenders only want to work with companies that have stable or increasing gross sales.  As you can imagine that is very rare right now!

This objection often angers and frustrates borrowers as bankers often dig deep into why their businesses have had a drop in sales.  For most borrowers this seems painfully obvious, however borrowers need to sit down and think this out if they are going to be able to get over this objection.

SOLUTIONS to Declining Gross Sales

This is one of the tougher problems to get over as you cannot just change your books.  However, you may have many more strengths within this issue than you realize.  Here are the best solutions to this specific issue:   

  1. Despite a drop in gross sales is your business still profitable from a cash flow perspective? (i.e. with accounting fluff taken out, such as deprecation, capital improvements, loss carry overs, or others such as rent paid to self, high distributions, etc ) If so, this is a HUGE point to present to banks. It’s almost as if you are saying “who cares if our gross is down, we’re in business to make a profit.  And we are still doing that.”  If your cash flow is strong you may have nothing to worry about, but just need to simply shop around until you find a bank that sees your logic and is still doing deals(click here to see how to research banks). 
  2. You sold off a division and or discontinued working in a particular area of your industry, ON PURPOSE.  There could be a number of reasons for this – like wanting to get out of lower margin type work, getting out of a highly competitive field, and or getting out of a business that requires a tremendous amount of capital to compete in (to reduce costs), etc.  Regardless, your drop in gross revenue is because you got out of that business.   
  3. You increased your prices, which have dropped your gross sales but have increased your margins/profitability.  Bankers often like this answer.
  4. You have recently diversified into a new field and it is showing monthly increases in sales.  You will likely want to put together a Trailing Twelve (see below) on this specific division, so that you can highlight the growing revenue. 
  5. You launched a new product, that is already selling well. Again, try to document it.
  6. You launched a new marketing campaign, that is already working.  And you can prove it (such as in direct marketing activities, that is easy to track and report).
  7. You brought on a new partner with more experience and or more cash/assets for the business. Banks will normally try to use those assets as additional collateral.
  8. You have actively reduced your operating costs, costs of goods sold and or created more efficiencies within the business.  A good example of this would be via technology.  And be prepared to show when the cost savings began, so that the banker can "Add These Back" on his analysis. 
  9. That the proposed loan will help consolidate business debt and substantially increase cash flow.  (Note you will still need to show that your sales have stabilized).    

So the idea here is that you are showing signs of growth and or that you have made a deliberate decision to let sections of your business go that were unprofitable and dragging your business down.

The worst thing you can do is simply blame your declining trends on the economy.  You’re giving nothing to the banker to work with.  It also shows a lack of depth on the borrower’s part.  They want to hear that you understand what the nuances are of the problem(s) and that you have real solutions to them.

If you are showing signs of increasing gross sales, Year to Date or within a section of your business you should highlight it by producing a TRAILING TWELVE.  This is just a profit and loss statement broken down month by month over the last twelve months.  It will highlight your new growth nicely.  Completing it with a chart showing the monthly increases is also a great touch.  You may also want to put together Projections, though these don’t carry a lot of weight. 

Keep in mind, that when you’re discussing your numbers, bring up your solutions/strengths immediately and often.  I.e. that despite your declining trends, that you are in fact poised for the future. 

For Example

On an interview with a loan officer, say he asks you: "Why have your gross revenues declined over the last three years?"  Many borrowers would quickly (and often in a irritated way) say "well, because of the economy." 

That answer will seriously dim his enthusiasm for your loan request.   There are several better answers to this question.  Like: "In 2008 we saw what was happening to our industry and made a desicion to pull out of lower margin type work and focus on more profitable business.  So yes, our Gross Sales did decline, but by design, and our net profit is still strong relative to the market."  THAT is an answer that will keep your loan alive.   

Another good answer to this question would be: "Yes our gross sales have declined, Joe, but relative to our competition we are in a strong position and are very optimistic about the future.  We have lowered both our costs of goods sold, our fixed expenses and have diversified into another closely related industry.  We have grown in this market by over 30% in 2009 vs 2008.  We are proud of this."



Continuation of Report:  Other Common Causes of Small Business Loan Decline and Their SOLUTIONS 
  • Small Business Loan Help Beginning of Report
  • Dealing With Bankers An overview of how an imperfect loan submission process works, and strategies on how to overcome it. 
  • Commercial Loan Solutions General Overview of most of the Solutions.
  • How To Research Banks & avoid working with SICK banks.
  • High Loan To Value How to deal with being over leveraged.
  • Declining Gross Revenue Get over declining gross sales.
  • Disadvantages & Advantages of Partnerships Specifically related to loan requests.

  • Low Business Cash Flow AKA low debt coverage ratio's & what potential solution are.
  • Low Liquidity or to little cash, relative to the loan request.
  • High Personal Debt your personal expenses have a big impact on your cash flow, see some solutions here.
  • Bad Personal Credit Scores Best solutions to getting over low credit scores.
  • Business Debt Consolidation Loans have their own set of issues, learn best solutions here.
  •  Problems With Other Sources of Income also referred to as Affiliates
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