While some business owners see steady income throughout the year, others have seasonal businesses that can thrive for a few months, then slow down to almost shutdown the rest of the year. An example is a summer business, such as a business that offers beach toy rentals. Business can explode during the summer months, but what happens to your income (and your ability to pay your bills) the rest of the year?
Fortunately, your finances don’t have to suffer as there are seasonal business financing options to consider.
What is a seasonal business loan?
To maintain stable cash flow, entrepreneurs like you may need to take out one or more small business loans, which for this purpose could be considered seasonal business loans. These financing options can help you get through sluggish times to make sure you always have enough cash to pay for your business expenses throughout the year.
How loans can help seasonal businesses
Your business can operate year round, although some seasons are more profitable than others. A seasonal business loan can help you pay your staff even in the quieter months or fill up with inventory before you have cash on hand. A loan can also help cover business expenses you incur to prepare for the season.
If you have the option, for example, to buy a competing business, a loan can provide you with the capital you need to take advantage of that opportunity.
Best seasonal business loans
Your seasonal loan options are plentiful, and there are lenders that suit all credit profiles. Here are a few to consider.
Guaranteed by the Small Business Administration, SBA loans are offered by banks, credit unions, and online lenders. They tend to offer lower interest rates and have long repayment periods.
While these may be more difficult to obtain due to the stringent credit score requirements, loans offered by banks and online lenders may also offer some of the lowest interest rates and favorable terms. .
Another option, especially if you don’t need all of your money at once, is a business line of credit. Get approval for a certain amount of money that you can borrow and pay back at any time. It is the ideal solution for a business with unstable cash flow.
If you are specifically looking to purchase equipment for your seasonal business, equipment financing might be the solution you are looking for. You use the equipment you buy, whether it is a company vehicle, machinery or computers, as collateral for the loan.
Short term loan
Another option for small business owners who do not have good credit is the short term loan. These loans usually have to be repaid within one to three years and may have higher interest rates.
Merchant cash advance
If your credit isn’t good but you need the cash quickly, consider a cash advance from the merchant. Rather than a loan, it is an advance on future sales.
Credibly offers cash advances with competitive interest rates.
If you send invoices to customers, you can use factoring to get an advance on invoices.
Business credit cards
Another seasonal financing option includes business credit cards. You can use them to make purchases for your business as per your requirement. Keep in mind that they carry high interest rates, so you’ll want to pay off your balance quickly.
Ways to Use Your Seasonal Business Loan
So what can you use seasonal financing for? Often times, small business owners have unforeseen expenses, and these can happen whether you earn income or not. A loan can help cover these unforeseen expenses, such as needing to fix a machine or covering an increase in employee health insurance, even during downtime.
You can also have high costs to ramp up during the busy season, and if you don’t have the cash on hand it can be difficult to buy inventory or hire staff. But that’s exactly what these financing options can help. You can also use the funds to market your business, buy ads, or invest in software that can help you grow.
How to get a seasonal business loan
The requirements for loan applications may differ from banks to online lenders. Some may require you to have high business or personal credit scores, while others may take other factors into account, such as your annual income. Some may have complex application processes, while others only require a few details about you and your business.
If you don’t have business credit yet, find out how to set up business credit to get the best rates.
Go over the loan requirements you want to apply for and make sure you qualify and have all the necessary documents. Check your credit scores beforehand to find out where you stand.
When to apply for a seasonal business loan
So when is the best time to apply for your loan? Don’t wait for the off-season to do this as your income may be lower and you may not be eligible for the loan you want at the best rates. Instead, apply for your loan when your business is booming, even if you don’t need the money right now, because then you will be the most attractive to lenders.
Things to consider when choosing a seasonal business loan
The first thing to consider when applying for finance is how you will be using the loan. Loans come at a cost, especially if you need to get a short term loan with higher interest rates because you don’t qualify for other options. Knowing what you plan to spend the loan on will ensure that it is a good use of the funds.
Also, establish a repayment plan. If you take on too much of a loan, you could struggle to make your monthly payments and risk defaulting on your loan if you can’t get back on track. Make your loan repayments part of your budget, especially for the low season, as it will be more difficult to make these payments than during the high season.
Spending a few hours researching different financing options from different lenders could save you hundreds of dollars or even thousands, so it’s worth it.
If you can’t find low-interest loan options, consider waiting to improve your credit. Paying your bills on time, reducing your existing debt, and regularly reviewing your credit report for discrepancies are some of the ways you can improve your credit scores.
Seasonal business owners need access to working capital, even when business is slow. A seasonal business loan could be the stopgap you need to get you through lean times.
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