How Seasonal Business Loans Can Help You Manage Cash Flow

If you run a seasonal business, you know that the bulk of your sales and economic activity happens during a short period of time. In the off-season, you still have expenses to cover and without revenue coming in, it can be tough. Even if you plan for it, you may face unexpected circumstances that can hurt your cash flow and make it challenging to run your business. Seasonal business owners can take steps to manage cash flow more effectively. Additionally, seasonal business loans can help you manage the fluctuations in revenue and keep you afloat during the slow season.

Review Seasonal Demand

Managing cash flow is a lot about timing. It matters when payments come in and when payments go out. While this is true of all businesses, seasonal business owners face unique hurdles that threaten their bottom line. To manage cash flow, the first thing to do is review the seasonal demand for your business.

Look at the periods when your business is flourishing and in peak season. Some examples include:

• Holiday decorations store (October to December)
• Ski resorts (November to April)
• Christmas tree lot (November to December)
• Ice cream truck or store owner (summer months)
• Flower shop (Valentine’s Day to Mother’s Day)
• Landscaping business (spring and summer)
• Snow removal business (winter months)
• Construction industry (spring and summer months)
• Outdoor activity rentals (spring and summer months)

These are just some examples of businesses that have a busy season and don’t necessarily operate year-round or at full capacity.

Take a look at your financial statements and evaluate your revenue patterns. Consider the periods of time you earn the most revenue. Looking at previous years can help you understand how much you might earn during that time and help you forecast for the future. You can also see how revenue drops in the off-season.

Have a Cash Reserve

When you run a seasonal business and have a razor-thin profit margin, it’s tough to put anything aside. But building a cash reserve for your business can help you with liquidity and any unforeseen circumstances. After reviewing your seasonal demand, make a plan for setting money aside during your busy period to help you with the slow season.

Identify Business Needs

After you review your seasonal demand, identify your business needs. For example, you might realize that when things are booming in your business it’s easier to manage cash flow. But in the off-season, it can be difficult. On the other hand, you might realize that your business does so well when it’s in season that you actually need more support and resources to hire and expand.

When you pinpoint what you need, that can help you find a solution that makes sense for your unique circumstances and business.

How Seasonal Business Loans Can Help

Even if you plan and prepare for the slow season, you might still face financial challenges when running a seasonal business. Cash flow issues can arise when there’s a delay between accounts receivable versus accounts payable.

You might have an emergency expense that wipes out your cash reserve in one fell swoop. As inflation continues to hurt the wallets of consumers and business owners alike, you might face an unexpected drop in sales, higher prices on the inventory you need to purchase, or both.

Seasonal business loans can help you manage these situations with more resources and less stress. However, there is more than one type, so it’s important to understand the differences and how each works.

Types of Seasonal Business Loans and Financing

If you need seasonal business financing, you must look at your short-term needs, long-term needs, cash flow, and whether you need flexibility or predictability. Doing so can help you pick from the range of seasonal business loans and financing options to find the right fit.

Term Loans

If you need a substantial amount of money to buy inventory, equipment, or real estate, a term loan may be a good option. When you take out a term loan, you’ll receive a lump sum. So, you can get all the money you need upfront but pay it back over time.

Term loans can be appealing as repayment is generally over a set term and comes with fixed monthly payments. This can help you budget so you know exactly what to expect.

Small Business Administration Loans

The Small Business Administration (SBA) can provide seasonal business loans or financing through its Seasonal CAPLine program. This type of financing can be revolving or non-revolving and helps with your seasonal working capital needs. It can also help if you have higher labor costs or need assistance to purchase inventory or manage accounts receivable.

You can also look into other SBA loan options, including the SBA 7(a) loan program, 504 loans, and microloans. The pro of this type of business funding is that SBA loans are backed by the agency. Some cons include longer processing and funding times and strict eligibility requirements.

Invoice Factoring

If your seasonal business model uses invoices for payments, you can look into invoice factoring as a financing option. The way it works is that a factoring company will buy your unpaid invoices. In return, you’ll get 80% to 90% of the total amount upfront. The factoring company may charge fees between 1% and 5%. This can help with cash flow issues and give you funds now.

Invoice factoring can be a good alternative to traditional seasonal business loans, as approval could be easier and faster.

Merchant Cash Advance

For seasonal businesses like holiday retail stores that rely on many debit and credit card transactions, a merchant cash advance is a financing option to look into. You’ll receive a lump sum and repay the amount through a percentage of your future card transactions.

This option is an alternative to traditional seasonal business loans. While they can be convenient, they can also be costlier than other financing options.

Business Lines of Credit

If you’re researching seasonal business loans and financing options, a business line of credit is something to look into. This type of financing is ideal if you need flexibility. The way it works is that you’re approved for a line of credit.

You can take “draws” on that line of credit for whatever amount you need up to that limit. Unlike a traditional loan, you only pay interest on the portion you actually use. As you repay the credit you use, you’re free to use the available credit again. Beware of annual fees and potential inactivity fees. On top of that, make sure you have a plan to repay the business line of credit to avoid overspending.

Business Credit Cards

Business credit cards can be a quick and efficient financing tool. Other traditional seasonal business loans can come in handy but may take longer to get depending on the type of loan and lender. If you need to fill a short-term gap and have access to a business credit card with a sufficient credit limit, this is a viable option.

A major plus is the convenience factor. But the major drawback here is the interest rates, which can be much steeper than other types of loans. If you can repay the balance relatively quickly and continue to pay on time, it can be a smart move and help you build your business credit.

Final Thoughts

Managing the fluctuations of a seasonal business can be tough. You may have a period of months where your business is booming and buzzing with activity. The rest of the year things may be quiet, yet you still have expenses for things you need to do to prepare for the peak season.

Seasonal business loans and other financing options can help you manage some of these difficulties. Once you identify your patterns and needs, you can choose the type of financing that makes sense for your particular business. Start by researching multiple lenders and checking eligibility requirements such as minimum credit score, repayment terms, and interest rates. From there, you can submit your application and get the funding you need to manage your seasonal business.

FAQs about Seasonal Business Loans

If you have additional questions about seasonal business loans, we cover frequently asked questions below.

Where Can You Get Seasonal Business Loans?

You may be able to get seasonal business loans from financial institutions like a bank or credit union, as well as online lenders. Each lender may have a different lending product to help seasonal businesses during slow periods.

What Credit Score Do You Need to Qualify for Seasonal Business Loans?

If you’re looking to apply for seasonal business loans, you need to meet the eligibility requirements set by the lender. This can often include minimum credit score requirements. Though it can vary and depend on many factors, lenders generally want a credit score of 650 or higher.

Which Type of Financing is Ideal for a Seasonal Business?

The ideal type of financing for a seasonal business is often a business line of credit which provides maximum flexibility. Business owners can get funds from the credit limit, repay what they use, and have the ability to use it again.

What is a Working Capital Loan for Business and Does it Make Sense for Seasonal Financing?

A working capital loan is a type of short-term loan that can help business owners cover any gaps in cash flow. It can make sense as a financing solution for seasonal businesses.

What Are the Eligibility Requirements for a Small Business Loan?

Small business eligibility requirements vary by lender. However, lenders typically review your credit, type of business, annual revenue, and time in business.

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