A seasonal business has high and low periods in revenue. During low sales months, it may be difficult to pay expenses. But, the expenses are usually necessary to operate and grow your business. How do you manage a seasonal business cash flow? You could use seasonal business loans to pay costs during the low season.
Regular loans and seasonal businesses
It can be difficult for seasonal businesses to land outside funding. Upon giving a small business due diligence, lenders often consider seasonal businesses riskier than year-round companies.
Getting financing for a small business, let alone a seasonal business, can be tough. Lenders might deny seasonal businesses of regular loans because they must be paid in monthly payments. You have to pay a fixed amount each month, no matter how much revenue your business makes. Lenders might question if seasonal businesses can pay fixed payments during the off season.
Seasonal business loans
Seasonal business loans, or short-term loans, meet the short-term needs of seasonal companies. A seasonal business loan can help you manage and project cash flow through high and low sales months. You can also use a short-term loan for unexpected expenses or to grow your seasonal business.
Using a short-term loan means you don’t have to cut business expenses. That is helpful if it isn’t your busy season and you are already on a tight budget. Some costs may be necessary to operate. But, a low-income season can cause you to lack the funds you need to pay for them.
Let’s say you own a roofing company. You are hired by a big client and need a lot of supplies to do their roof. But, it’s the start of your season and you do not have the money to buy the supplies from your small business vendor. Without the supplies, you cannot complete the job.
With a seasonal business loan, you can buy the supplies and complete the job. You can then pay the loan after the customer pays your invoice.
If you use a short-term loan, be sure you will be able to pay it off without difficulty. Though short-term loans offer advantages, there are some drawbacks. Instead of paying monthly installments, you pay the lump sum by a certain date. Also, seasonal business loans often have higher interest rates than regular loans.
Always prepare to pay your short-term loan. Paying the loan on time helps you maintain good business credit and avoid late charges.
There are many different short-term loan options for seasonal business owners. You might consider applying for a short-term loan from the Small Business Administration (SBA). The
SBA works with lenders to secure loans for small businesses.
The SBA short-term loan option you might want to take advantage of is the microloan program. With a microloan, the SBA lends you up to $50,000. The normal amount granted is about $13,000. You can use the loan to take care of your seasonal business expenses, such as equipment and inventory.
SBA microloan interest rates can range from 8% to 13%. You have up to six years to repay the loan. If you meet the guidelines that qualify your small business for SBA loans, the SBA takes you through a training program for using the funds and paying the loan back.
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