5 Ways Seasonal Businesses Can Use a Business Loan and Other Credit Options

Seasonal businesses witness a peak in cash inflow and demand mainly during a particular period of the year. This can result in challenges to meet demand and maintain cash flow. Hence, robust financial planning becomes essential for seasonal businesses to survive and remain profitable. 

Maintaining cash reserves throughout the year is one way to go about this. Alternatively, you can lean into short-term credit options. These credit options can make funds available instantly, allowing your seasonal business to operate seamlessly and meet requirements. 

How Seasonal Enterprises Can Leverage a Business Loan
There are a few ways in which you can leverage a business loan to meet the requirements of your seasonal business. 

Equipment Upgrade
Seasonal demand may require an increase in production. As such, many businesses seek to upgrade their equipment right before the start of the busy season. For instance, an ice cream manufacturer may need additional machinery to meet the surge in demand during the summer season.

A business loan can help you acquire the required funds to update your machinery and equipment. Many financial institutions also offer equipment loans designed to help you acquire the latest equipment for your business. 

Purchase Raw Materials and Restock Inventory
Before the peak season of your business begins, you must have the required materials. This will allow your seasonal business to operate seamlessly and meet the surge in demand without any delays. 

You may also need to replenish your inventory with the new products or designs you want to launch before the seasonal demand spikes. Doing this will help your business grow and flourish. You can leverage the attractive business loan interest rate and finance raw material purchases and inventory restock affordably.  

Hire Staff
An increase in seasonal demand may mean an increase in the overall work. Hence, you may have to hire additional staff to meet the demand efficiently. However, hiring new staff for your seasonal business may strain your existing cash flow. You can avoid that with a business loan and secure enough funds to appropriately compensate your new staff. 

Create Marketing Campaigns
Targeted marketing campaigns during peak seasons can help your seasonal business get additional traction from the audience. You can build an online and offline marketing campaign channel to promote your business’ products and services. However, you will need to hire experts in the industry to ensure that your marketing campaigns are fruitful. 

Manage Overhead Costs
During off-seasons, seasonal businesses generally see a slump in demand, which can restrict the cash inflow. However, this does not necessarily mean a stop in cash outflow. You still need to cover your overhead costs to keep the business running. If this is not managed appropriately, it can lead to problems and ultimately get in the way of readying the business for the peak season. 

Types of Credit Availability for a Seasonal Business
While the competitive business loan interest rate makes this credit facility an attractive option, there are other options you can rely on. 

Flexi Loan
Many banks and NBFCs offer Flexi business loans to seasonal enterprises. The maximum funds that you can avail of under this loan scheme extend up to ₹35 Lakhs or more, depending on the lender. 

The main characteristic of a Flexi loan is that you can use the sanctioned amount as and when you want and pay interest only on the amount that you use. As a seasonal business owner, you can get these loans and affordably finance your operations in the off-season. 

Business Line of Credit
Another lending option that you can get to finance continuous operations is a business line of credit.  It works similarly to a credit card and comes with a pre-approved limit. You can withdraw funds as per your needs and pay interest on what you use. You can also prepay and withdraw multiple times as per the terms of the facility. 

Business Credit Card
Many banks also offer business credit cards to enterprises. Like regular credit cards, you can use business credit cards to make payments easily and convert the cost into easy and affordable EMIs.

Using a credit card for making payments can also help improve your credit score and qualify for other business finance schemes. Note that business credit cards come with varied benefits that include rewards and cashback programs. 

This feature allows you to earn points or get a percentage of your spends back whenever you make transactions using the card. This helps you manage operations without any hassles and save money too. 

Financing Through Account Receivables
Seasonal businesses can also secure funds through account receivable financing, also known as invoice financing. This is an asset-based financing option, where you pledge your outstanding invoices to secure the funding up to a certain percentage of the invoice value.

Banks and NBFCs charge a fee based on the time taken by the customer to clear the pledged invoices. Note that account receivable financing is not a business loan but is structured in a similar way. 

Merchant Cash Advance
Businesses having poor credit scores and erratic revenue streams can also think of availing of a merchant cash advance. This is also a type of business finance where financial institutions provide a proportion of future revenue in advance.

You can use any of the above credit options to keep your seasonal business running throughout the year. While getting a seasonal business loan is an affordable and convenient option, you should manage your cash flows efficiently to avoid unnecessary debt to your balance sheet. 

You should ideally try to maintain a cash cushion to pay for expenses for the next six months. It is also necessary to have a good credit history, as you never know when you will require quick access to funds.