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If you operate a business like a Christmas tree farm or a lawn care service, you probably experience fluctuations in revenue. During slow periods, when you need money to help cover working capital, seasonal business loans may be a good option. These loans help you remain operational and ready for the next peak season.
I've been helping business owners find financing for more than 15 years. Below, I discuss financing options that operate within a seasonal cycle, what lenders are really evaluating, and how business owners use the money.
What Are Seasonal Business Loans?
Seasonal business loans are short-term or revolving loans developed specifically for businesses that have large variations between high seasons and low seasons. These loans provide working capital to offset declining revenues and enable the borrower to continue paying ongoing expenses until revenue increases.
In addition to providing working capital to support slow periods, seasonal business loans also finance expenses incurred before the beginning of a high season. Examples include inventory purchases, marketing costs, and employee recruitment and hiring.
Challenges Seasonal Businesses Face
Ongoing fixed expenses don't pause
Your ongoing fixed expenses include rent, insurance, utilities, and base payroll. These recurring monthly payments need to be made whether you have any sales or not.
Money goes out before it comes in
There is always going to be some expense before you receive your first major order. For example, purchasing inventory, hiring additional employees, and running marketing promotions.
Thin numbers during slow seasons
When reviewing your slowest month's performance, a lender will typically view the reduced sales as an indication of potential problems.
No cushion for unexpected expenses
An unexpected event that occurs during the slow season may have even more severe implications.
Seasonal Financing Options
For seasonal financing to be effective, it must complement your calendar. Consider financing options that provide for both the off-season dip and lessen the burden after revenue has returned.
| Financing option | Best use case |
|---|---|
| Business line of credit | Repeated gaps in working capital when you want to draw and repay throughout the year |
| Home equity line of credit (HELOC) | Business owners with home equity who need a revolving line at a lower rate than available through other means |
| Short-term business loan | Single up-front costs, such as inventory purchases or equipment financing |
| SBA loan | Long-range, planned purchases when you can wait out a longer approval process for lower rates |
| Merchant cash advance | Urgent cash needs when you have steady card sales and can accept a higher cost for speed |
| Invoice factoring | Cash flow gaps caused by long payment cycles from large clients or government agencies |
Business Line of Credit
A business line of credit provides access to revolving credit, which allows you to borrow money during your slow months and repay when your sales increase. Only the amount borrowed will incur interest charges, and your credit limit will become available again as you repay the borrowed amount. Through Clarify Capital, lines run up to $5 million with APRs as low as 6% and repayment terms from six to 36 months.
Unlike traditional secured lines of credit that are tied directly to collateral and must meet specific requirements regarding asset values and ratios, the unsecured lines in our network don't require collateral. Instead, lenders rely on your average monthly gross revenue, your personal credit score, and length of time in business to determine eligibility. A line of credit typically requires at least 12 months of successful operation.
Home Equity Line of Credit (HELOC)
A home equity line of credit mirrors the seasonal nature of your business nearly perfectly. It's an open-ended line that allows you to draw on as many times as needed. You draw funds during your slow months, repaying as soon as your busy season generates sufficient revenue to permit repayment. This cycle continues annually.
A HELOC is not a business loan. While the funds borrowed are used within your company, the line itself is secured by your home. A HELOC lets you qualify based on your personal income, credit history, and home equity rather than your company's revenue or time in business.
If you secure a HELOC with your home equity (the collateral), you typically qualify for a lower interest rate compared to an unsecured line. However, since your home serves as the collateral securing the line, falling behind can put your home at risk.
Short-Term Business Loans
Short-term business loans provide a lump sum of funds up front, which is repaid on a set repayment schedule. Business owners use these loans for one-time expenditures, including purchasing inventory, acquiring new equipment, or launching pre-peak season marketing initiatives.
Loan amounts range from $10,000 to $5 million with APRs beginning at 6%. Short-term loan terms are six to 36 months. Repayment terms can be set to coincide with the months when you generate revenue. Approval requirements typically call for a minimum 550 personal credit score, six months in business, and $10,000 in monthly gross revenue.
SBA Loans
SBA loans feature extended repayment terms and lower costs as they are backed by the U.S. Small Business Administration. Loan amounts up to $5 million are available with APRs beginning at 6.75% and repayment terms ranging from 10 to 25 years.
The trade-off is speed and the documentation required. Approval can take anywhere from 30 to 90 days. Typical approval criteria include being in business for two years or more, having a minimum 640 credit score, and submitting complete financial records.
This timeframe does not lend itself well to meeting an immediate off-season cash flow requirement. However, SBA financing may be suitable for long-range financing of planned purchases occurring several months forward.
Merchant Cash Advances
Merchant cash advances allow businesses to convert future card transactions into immediate cash. You'll receive a lump sum immediately and repay through a percentage of your current card sales.
Merchant cash advances can be funded as fast as same day, and qualified applicants have credit scores as low as 500. Pricing is determined by a factor rate, from 1.08 to 1.45, which results in higher total payback compared to most other forms of financing.
Invoice Factoring
Invoice factoring converts your outstanding accounts receivable into cash. You're selling those invoices at a discounted price and receiving immediate access to an advance of up to 100% of invoice value. Fees are typically 0.5% to 5% per invoice per month.
Financing typically takes place within one to two weeks, and repayment timing is linked to when your invoiced customers ultimately pay their invoices. Invoice financing fits businesses billing larger organizations or government agencies with long payment cycles (30, 60, or 90 days).
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
Financing Application Process
When applying for financing for your business, lenders evaluate historical monthly gross sales data, bank statements representing three to four months of activity, your business's revenue streams, and your personal credit history. The type of business also plays a role.
At Clarify Capital, you can apply online in about two minutes, and a dedicated lending advisor will guide you through the remainder of the process.
Repayment Structure
Repayments should mirror your natural seasonal revenue cycle. For example, a line of credit permits borrowing and repayment in smaller increments throughout the year, accommodating various levels of seasonal fluctuation. A short-term loan includes an established repayment structure with specified repayment amounts coinciding with specific months when you generate actual revenue.
Why Use Seasonal Business Loans?
This type of financing helps provide businesses with enough working capital to cover their needs when there are low cash-flow periods during the off-season. It also provides advance financing for preparation for the busy season.
The money borrowed is used for:
Payroll
Helps cover payroll for your core staff members to help them get through the slow months.
Inventory
Purchasing inventory early (and possibly at a lower price) before the increase in customer demand.
Equipment and repairs
Financing for equipment purchases or repairs during the off-season.
Marketing
Financing marketing campaigns that have to be done several weeks before your busy season.
Seasonal hiring
Hiring and training additional employees before the initial influx of customers.
Operating costs
Providing funds to cover operating costs such as rent, insurance, and utilities so a slow month doesn't result in a late payment.
Choosing the Right Type of Financing for Your Business
Here are the main factors that I tell SMBs to consider when selecting financing for their businesses.
Cost
Be sure to compare the overall amount to be repaid, including both the interest rate and other factor rates and fees that impact the true number.
Speed
Options include same-day funding, and the SBA's 30 to 90-day processing time frame addresses two very different issues.
Repayment terms
Determine if the repayment terms align with the time period in which you receive your income.
Amount
Whether you experience a recurring shortfall of $20,000 versus a one-time expense of $200,000 would indicate whether a revolving credit line or a term loan fits.
Compare Your Options Today
Whether using a HELOC, line of credit, term loan, working capital loan, or business credit card, lenders anticipate that all seasonal businesses will have lower sales during certain times of the year.
To help with creating predictability in your business's sales patterns, forecast conservatively during the off-season, eliminate non-essential expenses, and set up financing before you need it. Many business owners also maintain some sort of reserve for when unexpected downturns occur.
Once you're ready for financing to meet your needs before your next slow period, apply today, and a Clarify Capital lending advisor will discuss options that fit within your budget. Checking your options will not affect your credit score.
FAQ for Seasonal Business Loans
Still have questions about seasonal business loans? Here are some of the most common ones that I hear.
Are There Loans Based on Revenue Cycles?
Seasonal loans are created based on a company's income cycle. The company may have a high income period during a portion of the year, and would use these funds to finance its expenses during lower income periods, paying back when there is an influx of money again.
Does a Startup Have Access to Seasonal Loans?
Most lenders require companies to have established historical operations before extending a seasonal loan. Since we require our applicants to have been in operation for more than six months and generate at least $10,000 in monthly revenue, new start-up LLCs do not currently meet those requirements. Typically, newer businesses rely on other forms of financing, such as SBA Microloans, business credit cards, or personal financing, until the company has a successful history of generating revenue.
How Much Is the Monthly Payment on a $100,000 Business Loan?
Using a standard loan calculation with a $100,000 loan at 6% annual percentage rate (APR), assuming a 36-month term, results in a monthly repayment amount of about $3,042. Using the same terms and an APR of 12%, would result in a monthly repayment amount of about $3,321.
What Will the Monthly Payment Amount Be on a $50,000 Business Loan?
The monthly payment for a $50,000 loan, using the above-mentioned rates and terms, will vary depending on the number of months used to repay the loan. For example, if the borrower were to select a 24-month term at 6% APR, the monthly repayment would be about $2,216 per month. If the borrower were to elect to use a 36-month term at 6% APR, the monthly repayment would be about $1,521 per month. While the shorter term will result in greater monthly payments, the borrower will ultimately pay less in interest.
How Hard Is It To Secure a $1 Million Business Loan?
It depends on your circumstances. Lenders reviewing larger loan requests will evaluate factors including consistent and substantial monthly revenues, multiple years of successful operating history, favorable personal credit scores, and complete financial documentation, including tax returns and profit and loss statements. Clarify Capital provides financing for amounts up to $5 million.
Will I Need To Provide Only My Employer Identification Number (EIN) To Get Financing?
Although you'll need to provide your EIN with your application, it won't be sufficient on its own. Clarify Capital doesn't provide EIN-only financing. In addition to providing your EIN, all loan applications include questions regarding your business's current revenue levels, how many months you have been in business, and your personal credit history.
What Type of Financing Offers the Least Paperwork for Smaller Businesses?
Financing options requiring minimal paperwork are usually short-term financing options, such as short-term loans and merchant cash advances. These types of financing focus primarily on a company's current revenue levels rather than a long history of financial data. Generally speaking, faster approvals come at a higher price, so it's worth considering both the monthly payment amount as well as the overall payback for all potential financing options.
What Types of Fast Financing Options Do Small Businesses Have Available?
Fast small business financing refers to financing options designed for quick turnaround times. Many fast financing options can now be applied for entirely online and require very little documentation. For instance, Clarify Capital offers short-term loans, lines of credit, and merchant cash advance options that can potentially fund as fast as same day after approval.
Which Type of Business Financing Would Best Meet Your Needs for Managing Seasonal Cash Flow?
There isn't one specific type of business financing option that best meets every business owner's needs for managing seasonal cash flow. The decision will depend on how frequently and by how much your business experiences fluctuations in revenue. Business owners who consistently experience seasonal dips in revenue generally compare lines of credit, home equity lines of credit (HELOCs), and working capital financing.
Is My Application Protected When I Apply With Clarify Capital?
Yes. Clarify follows SOC 2 security principles, which outline procedures for protecting customers' sensitive information. Checking your options will not affect your credit score.
Michael Baynes
Co-founder, Clarify
Michael has over 15 years of experience in the business finance industry working directly with entrepreneurs. He co-founded Clarify Capital with the mission to cut through the noise in the finance industry by providing fast funding and clear answers. He holds dual degrees in Accounting and Finance from the Kelley School of Business at Indiana University. More about the Clarify team →
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