How To Finance Holiday & Seasonal Expenses
The holiday season is approaching, and with it comes colder weather, hot cocoa … and additional holiday expenses. We aren’t talking about your gift budget, either. If you are a business owner, you know that while the holiday season brings more customers, this seasonal rush also leads to additional expenses.
Holiday and seasonal periods leave many business owners scrambling for cash. Whether you need to purchase additional inventory to keep up with the influx of orders or you need to hire more employees to keep your business running like a well-oiled machine, you can get the extra cash you need with a business loan.
Just as all businesses are different and unique, so are business loans. While it may be tempting to just start applying for loans, you want to make sure that you’re making a wise business decision by selecting the most affordable loan that best fits your seasonal needs. In this post, we’ll review the different types of financing available to help you fill those seasonal gaps, what you need to qualify for a small business loan, and our top lender picks.
Read on to learn more before applying for seasonal business financing.
Table of Contents
Business Lines Of Credit
A business line of credit is a type of revolving credit from which you can make multiple draws. A lender assigns you a credit limit. You can make draws from your account up to and including the assigned credit limit.
With business lines of credit, you pay interest or fees only on the portion of funds that have been used. If your line of credit is $100,000 and you have only spent $10,000, you will only pay interest or fees on $10,000. As you pay off your balance, these funds will again be available to use.
A business line of credit is a great way to fund seasonal expenses because this type of financing offers so much flexibility. Traditional loans are great if you know specifically how much money is needed. With a business line of credit, you can withdraw money as needed to fund any expense. Business lines of credit can also be used toward any business expense, including the purchase of inventory or equipment, hiring employees, or working capital needs.
Repayment schedules vary by lender and may be made weekly or monthly. Most lenders set repayment terms between 3 and 18 months, and these terms are typically based on the amount drawn.
Who Is Qualified?
Qualifying for a business line of credit is fairly simple. While requirements vary by lender, most require that you have been in business for a minimum of one year. Annual revenue for your business should be at least $50,000, although some lenders require revenues of $100,000 or more.
Depending on the lender you select, your personal credit score could be a factor in qualifying for the loan and the amount that you’ll receive. For these lenders, credit score requirements are typically low at around 600.
However, there are lines of credit available that are based more on the performance of your business than on your personal credit history. With this type of financing, the lender will give the most weight to things like your business checking account, accounting software, and PayPal account. This allows the lender to analyze the performance of your business, determine if you’re eligible for a line of credit, and set a reasonable credit limit.
Our Top Pick
Kabbage offers lines of credit up to $250,000 for qualified businesses. Qualifying for a Kabbage line of credit is easy, and the application process takes just 10 minutes.
To qualify, you must have been in business for at least one year. Revenue requirements are as follows: either $50,000 in annual revenue or $4,200 per month for each of the last three months.
One of the benefits of working with Kabbage is that it does not have minimum credit score requirements. Instead, you connect your business accounts from services including QuickBooks, Amazon, Stripe, and Etsy, along with your business bank account, to qualify for funding. However, it’s important to note that Kabbage does pull your credit score when determining your eligibility for a loan.
The fee rates for Kabbage lines of credit are between 1.5% and 10% based on business performance. Fees are only charged on the amount withdrawn, and there are no hidden charges. There are no prepayment penalties, and you can save on fees by paying off your loan early. Repayments are made each month through ACH withdrawals from your business bank account. Repayment terms are set at 6, 12, or 18 months based on the amount drawn.
A short-term loan is a type of business loan that provides you with a specific amount of money that is typically repaid over one year or less. Some lenders offer short-term loans with longer repayment terms (up to 3 years).
A short-term loan is different from other types of financing because lenders charge a one-time factor rate instead of an interest rate. The factor rate is used as a multiplier to determine your total repayment amount. For example, if you have taken out a $5,000 short-term loan with a factor rate of 1.1, the total amount you will repay is $5,500.
Payments on a short-term loan may be made daily, weekly, or monthly depending on the lender’s policies. Additional fees may be added into your loan, including but not limited to origination fees and maintenance fees.
A short-term loan is a good option for your seasonal expenses when you know exactly how much money you need. If you know how many employees you need to hire (and the associated expenses that come with hiring) or the amount of inventory you will require, a short-term loan is a financing option you should consider.
Many short-term loans have lower borrowing requirements than long-term options, so more business owners are eligible. Short-term loans are also easier to apply for and can be funded quickly — sometimes within 24 hours. This is ideal if you’re in a cash crunch and need financing quickly to keep operations rolling.
Who Is Qualified?
Most business owners will qualify to receive a short-term loan provided they meet a few requirements. Borrowers with credit scores as low as 500 can qualify for a short-term loan. Other requirements include owning a business that has been in operations for at least 3 months, although time in business requirements may be higher with some lenders.
Cash flow is also an important factor in qualifying for a short-term loan. Lenders want to see consistent cash flow before approving borrowers for a loan.
Even though lenders set minimum requirements, you’ll qualify for higher loan amounts and lower rates and fees with a strong credit profile and business history.
Our Top Pick
PayPal’s LoanBuilder provides short-term loans for any business purpose. Through this lender, you can receive between $5,000 and $500,000. Repayment terms are between 13 and 52 weeks. Automatic payments are made weekly.
LoanBuilder charges a one-time fee between 2.9% and 18.72% of the loan amount. There are no origination fees or prepayment penalties with this short-term loan.
Borrowing requirements for this loan are simple. You must be in business for a minimum of 9 months and have at least $42,000 in annual revenue. Your business must be in a qualified industry in the United States. A credit score of at least 550 is required, and you must not have any active bankruptcies on your credit report.
Business Credit Cards
A business credit card is a financing option that provides you instant access to capital. A business credit card works just like a personal credit card. Once you’re approved for a card, the lender provides you with a credit limit. You can use the credit card online, in stores, or to pay your vendors up to and including your credit limit.
Each month, you’ll make a payment on your card, which will be applied to the principal balance and the interest at the rate charged by the issuer. Interest is only applied to borrowed funds.
Credit cards can be used for any business expense. You can use a business credit card to purchase inventory, to pay for normal operating expenses, or for equipment or supplies. Because you can access funds immediately, business credit cards can be used for unexpected emergency expenses as well.
Best of all, many business credit cards feature rewards programs. With qualifying purchases, you can earn points to use toward airline miles, hotel stays, cash back, and other perks.
Who Is Qualified?
Most business owners will qualify for a business credit card. However, as with other types of funding, borrowers with the best credit history will qualify for lower interest rates and higher credit limits.
For the best business credit cards, a good or excellent credit score is needed. Borrowers with fair credit may also qualify for unsecured cards with higher rates and lower credit limits. Borrowers with bad credit also have options. High-risk borrowers can apply for a secured credit card that requires a cash deposit. Credit limits may be increased with on-time payments, and paying your bill every month can help rebuild your credit.
Our Top Pick
Chase Ink Business Unlimited Annual Fee: $0 Purchase APR: 15.49% - 21.49%, Variable
Chase Ink Business Unlimited
15.49% - 21.49%, Variable
The Chase Ink Business Unlimited card is a top choice among business owners with good to excellent credit.
This card features unlimited 1.5% cash back on every purchase. An introductory rate of 0% is available for the first 12 months.
This card has no annual fee, and employee cards are available at no charge. New account holders can receive $500 cash back by spending just $3,000 within 3 months of opening the account.
Purchase Order Financing
If you are unable to pay your vendors for goods and services that your business needs to fulfill customer orders, there’s a financing option for you. If you can’t receive credit through your vendor and don’t have the funds to pay immediately, purchase order financing may work in your favor.
Purchase order financing provides funds you can use to pay your vendors. In essence, the lender pays for the goods and services that you need from your vendor. Some lenders will pay your vendors and allow you to set up your own repayment schedule. You — not the lender –will invoice your customers and repay the loan and applicable fees. You can receive longer, more flexible repayment terms. This allows you to purchase the goods and services that you need right now without having to pay the entire balance upfront, with costs spread out through manageable weekly or monthly payments.
Who Is Qualified?
Most businesses with verifiable purchase orders from creditworthy customers will qualify for this type of financing.
Based on the lender that you select, there may also be requirements in terms of transaction volume and profit margins.
Most lenders will perform a credit check. However, your personal credit is often not the most important factor in qualifying for these loans, but this varies by lender.
Our Top Pick
If purchase order financing would fulfill your financial needs, consider working with Behalf. Behalf provides purchase order financing up to $250,000. You can choose to repay the loan on a weekly or monthly basis for a period up to 6 months.
The application process is quick and easy. There are no minimum requirements for credit score or time in business, although a hard pull will be performed on your credit.
Behalf charges fees of 1% to 3% every 30 days. Borrowers that repay their loans on a weekly basis will receive a discount off of their borrowing fees.
An inventory loan is a loan that can be used to purchase inventory. You’ll receive the money you need to restock your business while spreading your payment out with affordable weekly or monthly payments.
Who Is Qualified?
Borrowing requirements for inventory loans vary by lender. Most lenders require a minimum credit score of 600, although borrowers with scores as low as 500 may qualify with certain lenders.
Time in business required is typically one year, while annual revenue requirements may be as low as $25,000. Most lenders require annual revenue of at least $100,000.
Our Top Pick
OnDeck business loans can be used to purchase inventory or for any other business purpose. OnDeck’s term loans are available up to $500,000. OnDeck has short-term loan options up to 12 months or long-term options up to 36 months for larger inventory purchases.
OnDeck’s short-term loans carry annual interest rates as low as 9.99%. Rates are based on your business profile and your personal and business credit scores. Origination fees for OnDeck loans are 0% to 4% of the total loan amount, and fees are reduced with each subsequent loan.
To qualify, all borrowers must have a time in business of at least one year. At least $100,000 in annual revenue and a personal credit score of 600 are required to receive an OnDeck loan.
Cash Flow Loans
Consistent cash flow is key to operating a business. But what happens when cash flow is running low? It can be a struggle to not only meet your regular operating expenses but an upcoming busy season can spell trouble for your business.
Before you panic, know that you have options. A cash flow loan can help you fill in the gaps and keep your business operating smoothly, even when business picks up. Cash flow loans can be used to help pay your operating expenses, cover payroll, or pay for any other recurring expense that’s critical to your business.
Many lenders offer multiple options that will help resolve cash flow shortages, including term loans, lines of credit, and invoice financing.
Who Is Qualified?
Like the other types of financing already discussed, most business owners have options when it comes to cash flow loans.
To qualify, a business should be in operations for a minimum of 6 months to 1 year, depending on the lender selected. Borrowers with credit scores as low as 500 may qualify for a cash flow loan, although a better credit profile results in more options and a more affordable loan.
Annual revenue requirements vary across lenders, but minimum requirements may be as low as $25,000. Most lenders, however, require annual revenue of at least $100,000.
There may be other requirements for cash flow loans depending on the type of loan you’re seeking. For example, the quantity and quality of your unpaid invoices will be considered when applying for invoice financing.
Our Top Pick
StreetShares offers three different types of loans that can help you resolve your cash flow shortage. One product is term loans up to $250,000 for qualified businesses. Terms up to 36 months are available. There are no prepayment penalties, and you can receive your funds immediately.
StreetShares also offers the Patriot Express Line of Credit. Credit lines up to $250,000 are available to qualified borrowers. Terms up to 36 months are available. There are no prepayment penalties, and you only pay interest on the portion of the funds that you withdraw.
To qualify for a loan or line of credit, borrowers should have annual revenues of at least $100,000. A minimum credit score of 620 is required to qualify. The time in business requirement is just one year. For loans and lines of credit, expect an interest rate between 6% and 14%.
StreetShares also has contract financing, a loan that is similar to invoice financing. If your cash flow shortage is due to unpaid invoices, this is a good choice for you. You’ll receive up to 90% of the amount of your unpaid invoices (up to $500,000 per invoice). The discount rate (or fees) you pay for this service vary based on factors including your industry and the number of invoices you have.
Qualifying for contract financing is easy. You must operate a B2B or B2G business. There are no credit or revenue requirements. The quantity and quality of your invoices are most important for this type of loan.
Which Type Of Holiday Financing Is Right For My Business?
Now that you’re familiar with the types of loans available, it’s time to select the loan that’s right for you. It isn’t uncommon to be stuck between two or more different options, so how do you decide which loan to pursue?
First, consider why you need the money. If you need a cash flow loan due to unpaid invoices, invoice or contract financing would be your best option. If you need a specific amount of money, consider a short-term loan. If you need to pay your vendors, apply for purchase order financing. If you don’t have a specific number in mind and just need fast access to funding, consider a business credit card or line of credit.
To make it easier to select your loan, also keep in mind how much money you need and how much you are eligible to receive. Compare the borrower requirements of lenders to make sure that you qualify based on your revenue, time in business, and credit profile. You can pull your free credit score online to get an idea of the loans, terms, and rates that may be available to you.
Finally, make sure that the return on investment outweighs the cost of the loan. Sure, it’s tempting to accept the first offer that comes your way, especially when you need to act quickly to get the money you need. However, you want to make sure that you’re getting the most affordable loan for your business.
Tips To Manage Your Cash Flow & Expenses During the Holiday Season
Getting a loan during the holiday season can get you out of a bind, but mismanaging your cash flow and expenses can lead to further financial issues. With a few simple steps, you can stay on top of your cash flow and expenses for a profitable holiday season.
One way to keep your business running smoothly is to invest in inventory management software. With these apps, you’ll be able to track inventory, sales, orders, and deliveries, which is especially helpful during the holiday rush.
To prepare in advance, you can create a cash flow forecast. This forecast will allow you to predict funds that will be coming in and going out of your business at a future time. By analyzing and calculating your cash flow, you can get an accurate picture of what to expect in the future.
Finally, know that unexpected emergencies pop up, usually when we least expect them. Be prepared for these emergencies by saving money in a special fund or applying for a credit card or line of credit before it’s needed.
The holidays can be extremely profitable for your business, but if you’re not prepared, this busy season can quickly turn into a nightmare. Be proactive in handling the holiday rush by preparing in advance and knowing what loan options are available to you when you need them the most. With planning and responsible borrowing, you’ll leave behind the stress of the holidays and be able to focus on your profits and further building your business.