Like the weather, business revenues fluctuate. In fact, for many businesses, the very reason business revenues fluctuate is because of the weather. If you’re the owner of a seasonal company, you know the ups and downs of seasonal cash flow all too well—which is why the best seasonal loan options can really be a help when you’re in a crunch.
Many business owners who are dependent on the hot or cold temperatures to make their products or services thrive have come to depend on business financing to tide them over until their next high season. If you haven’t yet figured out how the best seasonal business loan options can help you, you’ll want to take a look. Some types of financing are definitely better than others for seasonal businesses. Plus, there are certain times when you’ll want to apply to get approved.
We’ll take a look at the best types of seasonal business financing, and when you should get your application in. You might be surprised at what you’ll discover.
Every seasonal business is different by nature. Of course, that’s what you’d expect if you’re selling personalized Christmas stockings versus UV-blocking beach umbrellas. But even though income statements and balance sheets might look different for these two businesses, there’s actually a lot more in common than meets the eye.
Regardless of which season is their best, companies that do more revenue during one time of year over another all experience peaks and troughs in their business bank accounts. During slow times of year, it might be hard to keep the lights on, pay employees, or even find enough money to produce inventory so you’re ready to hit the high season with full force.
And that has massive implications for your bottom line. The right business loan, though, can put a seasonal business exactly where it needs to be.
There are lots of reasons why you’d need to borrow money during the off-season to keep things running. Here are three common reasons why seasonal businesses often lean on loans:
When you run through practically all of your inventory in the high season—say snowboards, maybe—you’ll need to have the money to make sure you’re fully stocked for demand again. That goes double if you’re manufacturing your own product, which might be more cost-intensive and time-consuming.
Say you own an equipment-intensive business, like landscaping. Your tools get tons of use during your peak season—so much so that they might need replacing before next year rolls around.
Even meeting basic payroll is hard for some seasonal businesses. The best seasonal business loans allow you to keep your year-round staff paid, as well as your necessary 365-day functions going.
Choosing the best seasonal business loan for your company, specifically, depends almost entirely on what you’re hoping to do with your money. Before you pick a type of financing, you want to understand your goals and your biggest challenges.
For instance, answer these questions:
Knowing the answer to these core questions, plus defining any other specifics, will guide you to your best seasonal business loan option.
A business line of credit is a favorite option for many business owners with uneven revenue, not just seasonal business owners. Why? Because a business line of credit is arguably the most flexible business loan option available.
As a sort of hybrid between a business credit card cash advance and a traditional business loan, a business line of credit allows you as the borrower to draw on an approved amount as you need it. That means you could never use it if you don’t want—or, on the other hand, use the entire amount. But you only pay interest on what you need, which is what makes it a one-size-fits-many option.
A business line of credit is fantastic for cash-crunch emergencies, and many entrepreneurs leave one waiting in the wings, so to speak, for just that reason. Others depend heavily on them, using them as commercial bridge loans and drawing from them often to help bridge periods when revenue isn’t steady. Interest rates are generally less than business credit card APR, and you can be approved for a credit line that’s often higher than what your credit card would offer, too, making a line of credit a more powerful tool.
Business credit cards are surprisingly powerful tools for low-season financing. That especially goes for new business owners.
Why new specifically? A few reasons. First, it’s hard to get approved for traditional business financing without a little bit of history under your belt. Lenders want to see your financial track record of stability, and that means you might have to show them a couple of years of peak seasons to prove you’re solvent. They want to make sure you can pay back your loan.
Plus, lenders are onto something here. If you don’t know too much about your own company’s off-season financials, you don’t want to commit to taking on a loan that you can’t certainly pay back. For example, what if a freak cold spell sweeps through, and only a quarter of the people swim at your club as compared to last year? If you were projecting your ability to pay off your loan based on last year’s earnings, you’d be in trouble.
For those reasons, a business credit card is the way to go. First, card issuers don’t care how long you’ve been in business—you just need a good personal credit score for approval. Next, you can spend on off-season expenses as you know you can pay them off. And paying off your bills in full and on time builds your business credit score, too, which is a nice bonus that’ll help you get a traditional business loan down the line.
If you need a little more spending power than you can muster with a month-to-month balance on a business credit card, you can also look into 0% intro APR business credit cards. These cards allow a special, fixed period of time during which you’ll be able to carry a balance with no interest. So, you can spend a little more on them, all while making a plan to pay back by the end of your period (which can be more than a year in some instances!).
If you need working capital for a short period, a short-term loan could be your best bet. As a term loan, this is what you likely think of when you hear “business loan”—it’s a lump sum you borrow from a lender, deposited into your business bank account. You’ll be able to use it as you need for the term of your loan.
Short-term loans are usually less than a year to repayment, and some go to around 18 months. So, you theoretically could use the capital during your off-season and make the money back during your peak to repay your lender.
Compared to medium-term or SBA loans, short-term loans have higher interest rates. But they’re also a bit easier to get your hands on, which could be helpful for you. Plus, if you need to get hold of money quickly, you can find online lenders who’ll approve your application in a matter of days if you’re a qualified borrower.
If the explicit reason you’re applying for a seasonal business loan is to refresh or replace the gear you use to make your business go, then you’ll want equipment financing. With this type of small business loan, you get a quote for the equipment you’d like to buy, and, if you’re approved, your lender will approve you for the amount of money you need to make the purchase.
This is an excellent loan for a few reasons. Number one, it’s what’s called a “self-secured” loan, which means that the equipment itself serves as collateral, so you don’t need to put up anything extra. Lenders can also finance up to 100% of the purchase price of the equipment—and, sometimes, in a matter of days—which makes it a great option for seasonal business owners who need to get moving on off-season changes as fast and inexpensively as possible.
You can also consider equipment financing for renovations. So, if you’ve been meaning to redo your beachside lobster shack, equipment financing just might be an option to think about.
You have plenty of cash and zero time during your busiest time, so it makes sense to apply for your loan when things slow down, right? Wrong. In fact, don’t wait if you want that money.
Although the idea of adding yet another task to your insane to-do list during your peak season might seem awful, that’s exactly when you need to apply for your seasonal business loan. And, it makes sense if you think about it: Lenders need to see the absolute strongest picture of your financials.
Not every small business loan application is the same, but fairly consistently across the board lenders will ask to see several months of your business bank statements (usually three or four). A lender is trying to evaluate whether or not you’re a risky candidate.
Of course, they know you’re a seasonal business—that said, if you can show them your strongest months, applying toward the end of your high season, your lender will be more inclined to give you the thumbs up. You’ll make a lender feel more confident that you can pay off your loan, since you generate a lot of high-season revenue later, and have more in your bank account now.
It’s so simple that it almost seems silly to say, but it’s true: If you run out of money during your off-season, you won’t make it to your next peak season.
You might not have considered taking on debt before, or might have decided it wasn’t the right option for you. But not every kind of seasonal business loan is the same. In fact, business financing just might be the difference between whether or not you open up your doors the next time the seasons change.
Meredith Wood is the founding editor of the Fundera Ledger and a GM at NerdWallet.
Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.