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4 Financing Options For a Seasonal Business in Peak Season

Business Finance

4 Financing Options For a Seasonal Business in Peak Season

Updated: May 21st, 2020

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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 for: 

1. Extra staff

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. 

2. Inventory rush order

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. 

3. Equipment repair or purchase

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.

5 questions to ask yourself before applying for a seasonal business loan or other financing

If you don’t have enough cash flow to cover all your busy season expenses and account for potential emergencies, financing can help. Before you explore your options, though, take time to evaluate your situation. Asking yourself the right questions can help you decide a place of logic rather than panic. 

  1. What do I need the money for? Do you have a specific purchase in mind, or do you just want extra working capital in case of a crisis? Both reasons are valid, but it’s helpful to clarify your intentions so you can figure out exactly how much funding you need.
  2. How much cash flow does the business have? Review your financials to assess your cash flow situation. If you can shuffle payments around to free up some cash, you may not need a seasonal line of credit or other financing. 
  3. What are the business’s revenue or sales projections? Look at your projections through the busy season and into the start of the slow season to see how much revenue you’ll be bringing in. You want to have enough money to cover a potential loan repayment after the busy season ends.  
  4. How much time do I have? What you need funding for — whether it’s inventory, marketing, or labor — will dictate how much time you have to apply for a seasonal business loan and wait for the approval. 
  5. What’s the cost and benefit of financing? Would your sales suffer if you didn’t have enough funding to, say, order extra inventory when you need it? Or would you manage without it? If you think funding could make the difference between simply breaking even on pre-season expenses and turning a profit, it may be worth the cost. 

4 financing options for seasonal businesses

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.

There are plenty of financing solutions out there, but these four options are some of the best for businesses in their peak season. 

1. A seasonal business line of credit

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. 

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. 

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. 

2. Equipment financing 

Equipment financing helps you cover up to 100% of the cost of new or upgraded business equipment. Think: 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%. 

Equipment financing is a good option if you need to buy, repair, or replace expensive equipment in the middle of a busy season. 

3. Business credit card

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 fairly 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.  

A business credit card is a good option for covering ongoing working capital expenses during your busy season. 

4. Term loan

A 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 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%. But, 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. 

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. Learn more about our seasonal business loans here

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