Is a cash-flow shortage making it difficult to prepare for your busy season?
If you’re a seasonal business owner, you’ve likely needed an influx of working capital at one time or another, and might again at some point. With that in mind, here’s a list of some of the top funding available to seasonal businesses.
Financing Your Seasonal Business for Success
Unless you’ve got a hefty cash reserve, it might be a challenge to pay for inventory, market your business or hire staff during slow periods. Let’s take a look at how seasonal business financing can help you earn positive net working capital.
Stock Up on Inventory
Get ready for your busy season: Buy the inventory you need to ensure maximum profitability. Whether you need to order snowboarding equipment for your ski shop or decorations to sell in your holiday store, stocking inventory can prove costly. However, having enough inventory is vital to capitalize on sales during your business’s peak season.
Promote Your Seasonal Business
As you lead up to your busy season, you might want to spend money advertising your business, either on the radio, in local circulars or on billboards. Your goal is to get as many people in the door as possible. The higher the foot traffic, the higher the potential for increased revenue.
Keep in mind, marketing your business can be costly and may not be an expense you’ve budgeted for. You see the return on investment, though. As such, you’re open to financing the cost if it can lead to increased sales.
Hire Seasonal Help
As you’re ramping up for the busy season, you’re going to need staff. Hiring workers costs money, which you might not have available before the season kicks off. Because of the nature of seasonal businesses, staff is often transient — meaning you may not have the same group of workers at your ready year after year. You also might need to spend money advertising open positions. A seasonal loan could provide the extra funding you need to open your doors for business.
Keep Up with Year-Round Monthly Payments
Even in low revenue months, there are certain bills that remain constant — rent, utilities, insurance, etc. When money is only flowing out of your business, not in, times can get tough. A loan can help with the financial management of a seasonal business during the in-between months.
Plan for Unexpected Expenses
Unanticipated expenses arise all the time, and some you just can’t put off. A roof leak, a burst pipe, an unexpected tax bill, can all leave you scrambling to find the funds you need fast. Certain seasonal business financing options are available quickly, as fast as 1 day of approval with some lenders. Just what you need when an emergency crops up.
How Much Can My Business Qualify For?
Best Financing and Loan Options for Seasonal Loans
A seasonal loan, by definition, refers to financing that can be repaid according to a business’s peak season and cash flow.
Let’s look at the top seasonal business financing options:
Business Line of Credit
If you’re in need of seasonal working capital, consider a business line of credit. If approved, your lender will determine your credit limit. You don’t have to access your credit until you need it, and you don’t need to use all your funds at once. Plus, you only pay interest on the amount you borrow.
What’s more, many business credit lines are revolving. That means your credit line is restored as you make payments, up to your original credit limit.
Business lines of credit are an option if you’re in need of temporary working capital and don’t want to be limited by how you can use the funds. Minimum credit score requirements for business lines of credit often range from 550-575.
There are a couple of business lines of credit:
Secured Credit Lines
This type of financing involves offering collateral, which reduces the risk to the lender. If you default on the funding, the lender has the right to collect the assets you’ve provided as security to recoup losses. Secured lines of credit often have lower interest rates and higher credit lines than unsecured lines.
Unsecured Credit Lines
Unsecured lines of credit usually have shorter repayment windows, higher interest rates and lower credit limits than you’d find with a secured credit line. That’s because borrowers don’t offer any collateral to secure their debt, which creates more risk for the lender.
Business Credit Card
For a seasonal business owner, a company credit card can provide short-term financing when you need it. As with a personal credit card, the lender provides you with a credit card and you’re granted a credit limit. You can tap into this credit line when you need it and pay it down monthly. Note that business credit cards might impose a fee for cash advances, a fee typically waived with business lines of credit.
Prepare for your busy season by taking out a short-term loan. Short-term loans are often meant to be repaid in less than 18 months. This can vary depending on the lender, however. For instance, some short-term loan terms may require payment in as little as 3 months, while others may require payment in several years.
Additionally, your payments may be weekly or daily instead of monthly. Depending on the lender, you may be able to qualify for a short-term loan with a minimum credit score of 540. Short-term funding could be offered up to $500,000, with some lenders offering higher loan amounts.
SBA 7(a) Loan
If you’re looking to renovate your seasonal storefront, need to purchase inventory or are seeking working capital, consider a 7(a) loan backed by the Small Business Administration (SBA).
While the SBA doesn’t actually lend borrowers money, it does guarantee the lender a certain percentage of the funds borrowed, which puts less risk on the lender. For loans less than $150,000, the SBA guarantees 85%. The agency guarantees 75% for loans greater than $150,000, up to a maximum of $3,750,000 per borrower. Loan limits can’t exceed $5 million and repayment terms are typically 10 years, though they may extend up to 25 years.
In the 2018 fiscal year, the SBA approved nearly $25.4 billion in 7(a) funding, which accounted for more than 60,000 loans.
While the approval and funding process for a 7(a) can take 3 months, the SBA Express process is designed to take about 30 days. Funds are limited to $350,000, of which the SBA insures 50%. Repayment terms may be 5 years or 10 years. Additionally, interest rates are generally higher than those offered through 7(a) loans.
SBA Seasonal CAPLine
If your seasonal business has been in operation for at least 1 calendar year, you could be eligible for a line of credit guaranteed by the SBA. Approved borrowers can use Seasonal CAPLine funds to finance increases in inventory and accounts receivable due to your business’s seasonality. In some instances, increased costs associated with hiring workers may also be considered an eligible expense. Borrowers may be approved for up to $5 million, and repayment terms can extend to 10 years.
Merchant Cash Advances
For those looking for quick access to cash who have a credit score in the 500s, consider a merchant cash advance (MCA). An MCA is an advance on your future sales.
If approved, a lender provides funds that are paid back with a percentage of your anticipated credit- and debit-card sales.
Repayment is based on a factor rate, a percentage often expressed as a decimal figure (e.g., 1.14). To calculate repayment, you would multiply the factor rate by the total amount advanced. Payments often are made daily, and can fluctuate based on your daily sales. Repayment terms vary, and may range from 3 months to 18 months.