United States
Updated: February 20th, 2024
For seasonal operations, maintaining steady cash flow is crucial to making the most of the busy periods. Beyond budgeting for upfront inventory and marketing costs, you also have to set aside enough cash for mid-season expenses.
Depending on your finances and level of preparation, you may need a seasonal business loan, line of credit, or another type of financing to cover periodic needs. It can be a lot to think about, especially when you’re in the off-season. However, getting ahead of the game with your financial estimates can help you secure more affordable financing well in advance.
This guide will walk you through everything you need to know about seasonal business loans. We’ll cover how you can use them, what to know before you apply, and which loan is right for your unique situation.
If you’re struggling to oversee operations or process customer orders during your busy season, you may need to hire and train additional employees on the fly. Bringing on extra workers mid-season can help you ship products faster, say yes to more work, and address customer concerns more easily.
Having enough stock to last the busy season is critical for both your revenue goals and reputation. If products are selling out faster than you anticipated mid-season, you need the cash flow flexibility from a seasonal business loan or other financing option to place a rush order with your vendors and suppliers.
And if you’re on top of your cash flow forecasts, you might want to use a seasonal business loan to stock up on inventory before the madness begins. It’s quicker (and cheaper) to build up your inventory in advance rather than rush suppliers and pay expedited fees.
Reliable equipment is a necessity for the busy season, whether it helps maintain operational efficiency or essential to serving your customers. If you’re halfway through peak season when your point-of-sale system malfunctions, for example, or your delivery vehicle shuts down, you need cash to spring for a repair or purchase a replacement.
You also might find that a single register isn’t doing the trick, or you may need to purchase an extra fridge or two. Use an emergency business loan to finance upgrades when they’re most needed.
Strike while the iron’s hot. The best time to invest in your marketing is when business is booming. Let momentum carry your business forward. Win brand-new customers and entice previous customers to return. Invest in loyalty programs to turn first-time buyers into lifelong advocates.
If you don’t have enough cash flow to cover all your busy season expenses and account for potential emergencies, financing can help. However, before you explore your options, take time to evaluate your situation. Asking yourself the right questions can help you decide with logic rather than panic.
Applying for financing during the peak season may seem intimidating, but it’s an opportune time to secure capital. If you’re bringing in the highest revenue during your busy period, you’ll have the strongest financials to show, which can help you score a lower interest rate or better terms.
However, quick financing can also be more expensive. If you know things will get crazy during the peak season, consider finding a financing option in advance. Some of the choices we’ll discuss below can (and should) be obtained well before you actually need them.
There are plenty of financing solutions out there, but these five options are some of the best for businesses in their peak season.
A business line of credit gives you access to a certain amount of funds you can tap into repeatedly. Lines of credit are great options for seasonal businesses because you can use them for ongoing needs, like operational expenses and inventory.
You can use your line of credit as often as you like or keep it stashed away for an emergency. You only pay interest on the portion you borrow, and you regain access to the entirety of your credit line as soon as you pay off the borrowed amount.
It’s fairly easy to qualify for a seasonal line of credit as long as you have decent business credit and a history of revenue, but it’s important to watch your spending.
The average APR for a business line of credit ranges from 8% to 80%, depending on the lender. If you don’t bring your balance back to zero each month, you could accumulate a lot of debt in interest (which may negate the benefits of obtaining a seasonal business loan in the first place).
A business line of credit is a good option if you need a flexible, short-term solution to bridge a gap in your cash flow.
Equipment financing helps you cover up to 100% of the cost of new or upgraded business equipment. You can use an equipment financing loan to cover just anything from construction equipment and vehicles to software or specialized machinery. You make monthly payments on the equipment plus interest, and when you pay it off, you own the equipment.
Qualifying for equipment financing tends to be easier than qualifying for other types of loans since the amount you borrow is based more on the cost of the equipment than on the strength of your credit. Depending on the lender, you could see interest rates as low as 5% or as high as 30%.
Plus, you typically don’t need to provide collateral because the equipment you’re financing acts as collateral. This makes it much easier to qualify and reduces your level of risk, too.
Equipment financing is a good option if you need to buy, repair, or replace expensive equipment in the middle of a busy season.
A business credit card gives you access to a set amount of credit each month, which you can use to cover short-term needs, like purchasing supplies, ordering last-minute inventory, or paying utilities.
You can get a business credit card relatively easily based on your personal credit and business revenue, but you should be mindful of how you use it. Using a business credit card for big purchases can tie up your revolving credit and make it harder to pay off your minimum balance each month, which can then hike up your interest rate.
It’s always a good idea to keep a business credit card on hand to cover purchases here and there. If you pay off your balance month after month, you won’t even have to worry about interest rates.
A business credit card is a good option for covering ongoing working capital expenses during your busy season.
A business term loan gives you a set amount of money to pay off over a set period. Term loans work well for seasonal businesses with bigger purchases to make, like buying property, renovating a storefront, or ordering inventory in bulk.
Interest rates and terms vary by lender. Bank loans and loans backed by the Small Business Administration (SBA) generally offer rates between 4-6%, but their approval processes can be lengthy, sometimes taking up to 90 days.
On the other hand, alternative lenders have average APRs ranging from 7% to upwards of 50%. However, the application and approval processes for seasonal business loans through alternative lenders tend to be quicker. Depending on your lender, you could get funding in just a few days.
A term loan is a good option if you have a major purchase you need to make before or during a busy season.
Peak season doesn’t always mean a stronger cash flow. Depending on your industry and clients, you might have to wait weeks or months to see payment from your clients. Unfortunately, those sales won’t help you finance ongoing operations in the near term—not without invoice factoring, at least.
Invoice factoring lets you trade your IOUs for immediate cash. If you have pending invoices from your customers, you can sell them to a lender or factoring company for upfront money.
Usually, a factoring company will buy your invoices and forward you around 80% of the invoice amount. Once they collect the payment from your client, they’ll pay you the remaining balance after subtracting their factoring fees.
If your credit score isn’t top-notch, this can be an excellent financing option. Factoring companies are less concerned with your credit than that of your clients (since these are the people they’ll be collecting from).
Invoice factoring is a good financing option if your cash is tied up in account receivables during peak season.
Strategizing for your seasonal business’s success can be complicated, especially when you have upfront and mid-season costs to account for. Fortunately, financing can help. At Funding Circle, we believe in affordable interest rates and fast turnaround times—which is precisely what you need if you operate a seasonal business.
Here are a few loan options we offer that are perfect for financing seasonal businesses:
Want to know more? Learn more about our seasonal business loans here.
Paige Smith is a content marketing writer who specializes in writing about the intersection of business, finance, and tech. Paige regularly writes for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.
Get our latest news and information on business finance, management and growth.
