As the owner of a seasonal business, you understand that your company faces an additional set of challenges every year. You need enough cash flow to get you through mid-season and enough capital to prepare you for the rush of the busy season. Fortunately, seasonal business loans present an opportunity to do both, and well-planned debt financing is a vital source for all businesses. This brief overview will break down the types of business loans, how to use them, and questions you should ask yourself before applying. Read the article and find out how to use seasonal business loans to stimulate your company’s growth.
Types of Loans
Your peak season is the ideal time to start applying for financing. Lenders ask for financial statements, and your cash flow and revenue are highest during this time. There are online lenders that provide fast, simple financing solutions, but if you wait until mid or off-season to start, you may end up with only expensive loan options.
Here are five excellent choices for seasonal businesses:
- A business line of credit provides you with a definitive amount of funds accessible as you need it, and you only pay interest on the amount you withdraw. Seasonal businesses benefit because you can use your line of credit only during times when business is slower.
- A short-term loan is a reasonable option because it provides cash for day-to-day operations, and can come in handy during the off-season. The loan is dispersed in a single amount and repaid monthly. The average length is one year.
- Invoice factoring is a great option for businesses that primarily receive payments from customers through invoices. You can sell your pending invoices to a lender for a discounted percent of the worth and allow them to collect for you. The lender will then pay you the remaining balance minus their fees.
- Equipment financing is awarded specifically to purchase new equipment. The qualifications are typically less strict than a traditional loan, and it is a great option if you need to quickly replace or repair equipment during the busy season.
- A small business credit card gives you access to a set amount of credit, much like a business line of credit. However, a credit card is easier to get and it provides a quick solution to small financial needs. It is not a reasonable option for very large expenses.
Once you decide on a financing strategy, you need to figure out what you want to do with the funding.
How To Use a Business Loan
Once you acquire the capital you need, how should you use it? With each busy season, you should be thinking about innovative ideas for company growth and maintaining year-round expenses without falling behind. Here are a few ways that you can use your business loan:
- Prepare for the busy season. During each busy season, anticipate that the next will be better and prepare for high volume sales and more customers.
- Hire seasonal employees. Retaining the same amount of employees year-round is not a feasible option for a seasonal business.
- Invest in branding and marketing. Expanding your budget for marketing can help grow your business during the next peak season.
- Set money aside for overhead costs. You do not want to worry about rent, utilities, and payroll during the slower parts of the year.
- Make upgrades. If you are thinking about remodeling or rebranding, put the money aside and do it during the off-season when your business will not be interrupted.
Seasonal businesses are heavily reliant on the owner’s ability to plan ahead. If you obtain the funding you need when your business is at its peak and use it during the slow times, you have a better chance for growth.
Questions To Ask Before Applying
Part of the planning process is to ask yourself the relevant questions. Before you start to dig through the pool of debt financing choices, answer five important questions to help you figure out which financing option is more beneficial for your seasonal business.
1. What Does Your Business Need?
Are you preparing for a specific purchase? For example, do you need new equipment, or are you thinking about remodeling your location? Maybe you just want to have cash available in case of an emergency. Pinpoint what it is that you need first.
2. How Stable Is Your Business Cash Flow?
Know your cash flow statements well. Analyze several years back to look for patterns or trends that could lead you to better prepare for times when cash flow is diminishing. You may even find that you can make some changes that eliminate the need for financing to stabilize your cash flow.
3. How Do Your Revenue and Sales Projections Look?
If you are going to take on a loan or other form of financing, take a look at your sales projections first. You will want to ensure that you can maintain your payments during the parts of the year that your business is the slowest.
4. What Are the Pros and Cons of Financing?
You should decide whether or not the financing you are considering is absolutely crucial. Could you make it through the slow season without debt financing? Could you prepare for the busy season without help? If you find that you could turn a profit without financing, that is great, but if your goal is to turn a profit and be able to expand, you may want to create a financing plan.
5. When Do You Need the Funding?
Applying for a traditional loan can take months. Do you have enough time to prepare and apply for the type of loan that you want? Equipment financing and credit cards are usually fast capital, but if you need something more substantial than a credit card and less specific than equipment financing, you have to weigh the need against the amount of time you have.
As you navigate through a finance strategy and start to look at your options, take the time to consider different lenders as well. Many small businesses do not realize that they have options outside of the local bank. For more information on seasonal business loans, contact Platform Funding and get started with just three simple steps.