The holiday season is approaching, and with it comes colder weather, hot cocoa, and additional holiday expenses.
If you’re 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.
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.
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.
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.
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 up front, with costs spread out through manageable weekly or monthly payments.
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.
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.