Club member and fundraising concert organiser Iain Johnstone said the club was recently notified about new fire escape regulations that would severely impact on its operations.
The building has a fire escape but it is no longer compliant with current rules.
Because the club no longer had a second fire exit from its first floor premises down to Manse St, fire authorities had limited the number of patrons in the venue to 50, including band members.
It could hold up to 150 people, Mr Johnstone said.
"Half of our capacity is band members at the moment.
"This puts enormous pressure on our ongoing viability — and ability to survive in the short term — as we plan the way forward," he said.Most of the club’s income is from bar sales.
"With the limited numbers, we’ve already had to cancel a big concert which normally brings in a lot of revenue."
Finding another venue would be too expensive, he said.
"If we can’t get the money, it’s a possibility we might have to close the club, which would be a shame after 42 years."
Mr Johnstone said the non-profit organisation needed about $10,000 to build the new fire escape.
It planned to hold a Mula for Musos concert at the Crown Hotel on September 30, to raise money for the development.
The concert starts at 5.30pm.