Seasonal Business Financing: 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.
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, you can get the extra cash you need with seasonal business financing.
There are several types of seasonal business financing available, but which is best for your business? Learn whether a seasonal business loan, line of credit, or other funding option can bring you and your customers good cheer this holiday season.
Table of Contents
- How To Manage Your Cash Flow & Expenses During the Holiday Season
- Types Of Seasonal Business Financing
- Business Lines Of Credit
- Short-Term Loans
- Business Credit Cards
- Purchase Order Financing
- Inventory Loans
- Cash Flow Loans
- Which Type Of Holiday Financing Is Right For My Business?
- The Bottom Line On Seasonal Business Loans & Financing
How To Manage Your Cash Flow & Expenses During the Holiday Season
Navigating the holidays isn’t easy, let alone running a business during the holidays! Here are our top tips for managing your seasonal cash flow and making the most of the holiday sales season.
Create A Cash Flow Forecast
To prepare in advance, you can create a cash flow forecast that 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.
It’s especially crucial to analyze any previous seasonal periods so you can have the most accurate idea of what your seasonal cash flow needs are. This will help ensure that you don’t apply for too much financing.
Invest In Inventory Management Software
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.
Prep Your eCommerce Store
Giving your eCommerce store a facelift ahead of time is a great way to maximize holiday sales. Make sure your listings have optimal images, titles, and SEO-focused descriptors so holiday shoppers can find your products, and follow other proven holiday eCommerce tips.
If you haven’t set up your eCommerce store yet, it’s not too late! A basic eCommerce store could be a good start for this year. Learn how to create an eCommerce store with our complete guide.
Apply For Seasonal Business Financing
Getting a loan during the holiday season can get you out of a bind and provide the cash flow you need to purchase inventory, pay seasonal workers, run holiday marketing campaigns, or whatever the season brings for your small business.
However, you don’t want to hurt your business in the long run by taking out a bad loan, so be sure to choose the best type of holiday financing with the most favorable terms for your business.
Create An Emergency Fund Or Savings Account
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.
Types Of Seasonal Business Financing
When it comes to getting cash flow for the holidays, it’s easy to start with loans. But while those are completely viable financing options, there are more holiday financing opportunities out there for small business owners.
The best options for seasonal business financing are:
- Business lines of credit
- Short-term loans
- Business credit cards
- Purchase order financing
- Inventory loans
- Cash flow loans
Let’s break down each of these seasonal business financing options so you can know exactly which one is best for your holiday needs.
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.
Pros
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Revolving access to funds
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Funds cover a variety of expense types
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Access to cash flow whenever you need it
Cons
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Draw fees & annual fees can apply
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Other financing could be better for lump-sum cash needs
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 seasonal employees, or working capital needs.
Learn how to get a business line of credit or take a look at the best small business line of credit options instead.
Short-Term Loans
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 three years).
Pros
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Quick time to funding
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Approval is less reliant on credit score
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Usually doesn’t require collateral
Cons
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Rates can be high
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Daily or weekly repayments
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Potential prepayment penalties
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 to 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.
Short-term loans typically 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.
Our top picks for short-term business loans offer safe options with affordable rates.
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.
Pros
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Quick access to cash
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Good fit for multiple, recurring purchases
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Can earn rewards on spending
Cons
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Not all cards build credit
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Relies on your credit score to qualify
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APRs can be higher than other business financing
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.
The best credit cards for small businesses are a great spot to start your search for the perfect seasonal business credit card.
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. Purchase order financing provides funds you can use to pay your vendors.
Pros
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Less strict borrower qualifications than other financing options
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No weekly or monthly repayments
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Let’s you take on large or custom orders
Cons
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Potentially expensive fees
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Relies on customer’s paying invoices on time
In essence, the lender pays directly for the goods and services that you need. 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.
Our favorite purchase order financing option is Behalf for small businesses. Learn more about Behalf’s rates and fees in our full review.
Inventory Loans
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.
Pros
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Great for inventory purchases
- Provides cash flow upfront
- Quick funding times
- Easy to renew
- Uses inventory as collateral instead of personal guarantee
Cons
- Potentially high factor rates
- Not all loans build credit
Inventory loans are a good fit for businesses that need a large influx of holiday inventory to meet customers’ demands. 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.
Luckily, there are plenty of great inventory loans for small businesses.
Cash Flow Loans
Consistent cash flow is key to operating a business. But what happens when cash flow is running low? A cash flow loan can help you fill in the gaps and keep your business operating smoothly, even when things get busy.
Pros
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Quick access to funding
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Multiple types of financing to fit various borrower requirements
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Can be used for multiple types of expenses
Cons
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Not always renewable or revolving
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Potentially high fees
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 cash flow loans for small businesses with multiple options that will help resolve cash flow shortages, including term loans, lines of credit, and invoice financing.
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.
The Bottom Line On Seasonal Business Loans & Financing
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.