There’s no question that asking banks for seasonal financing can be stressful. Banks know that the pressure of cyclical down times often translates into financial strain. Nonetheless, year-round commitment is necessary for seasonal businesses and planning ahead can help ease financing stress. Regardless of when peak season hits for your business, all businesses thrive when revenue is used to fuel growth rather than cover past expenses.

1. How will business expenses be covered in the off-season?
A fundamental question: how will your business survive the offseason? Whether or not your business shuts down completely in the offseason, year-round expenses such as utility bills, rent, as well as salaries for yourself and maybe some year-round staff need to be covered. Minimizing short-term debt is key, setting your focus, instead, on long-term financing needs. The best options for off-season expenditure coverage are revenue from the previous peak and small business financing. 

  • Past Revenue: Ideally, some revenue can be used to cover downtime expenses with most left over to reinvest in the next peak business cycle. However, covering too many downtime costs through past revenue can be a trap that inhibits long-term growth.
  • Small business financing: Small business financing is an ideal solution to give you some room to cover expenses and focus on building your business’ future. It’s best to weigh your financing options before you’re in between a financial rock and a hard place. Not only does this signal good planning and a long-term success- focused approach but it also protects you from rushing into a predatory financing model.
  • *Note on short term debt (i.e. credit cards): If you are covering long term and recurrent expenses through short-term debt, you risk long-term inhibited growth. Being held back by debt will prevent you from orienting your business plan towards the future and planning for growth.

2. What are off-season revenue-generating options you have considered?
Though your specific business model may be seasonal – the brand you’re trying to create is not. Finding off-season revenue-generating options that work to build your business but also help cover downtime costs demonstrates a proactive approach to planning and conducting your business plan. Thinking about how you can repurpose your space or provide other services year-round can help secure a steady cash flow, alleviate some financing stress and increase the likelihood to get approved for financing.

3. What is your operational peak-season cash flow requirement?

What is it going to take to get your business up and ready for peak season? This is where a steady revenue is an absolute necessity because no business can fuel up and succeed in peak season without cash to re-invest. What banks are trying to figure out is whether your business will be able to take advantage of peak sales times, advertising, stocking up, staffing etc. when the time comes. This helps them gage whether or not you have broadly considered the scope of your business and have a long term approach to building your business rather than just using financing to cover low periods.

4. What are the risks of seasonal failure?
Seasonal businesses can fail for a variety of reasons. Being aware of the risks and learning how to recognize signs of oncoming slumps early on can help mitigate the negative trajectory of a failed season. Poor weather is one type of seasonal failure, that’s very difficult to gage in advance. Management interviews and planning need to account for the potential of seasonal failure and adopt a flexible approach to preparation. This can include finding out whether stock up orders can be cancelled, how susceptible the business itself is to cancellations, timing of production  (i.e. well in advance versus shortly before peak season) and what does staffing look like/can this be scaled back in the event of seasonal failure?

5. What information is available for the bank to monitor its seasonal loan?
The bank will certainly want to be a part of the loan process in so far as monitoring financing regularly. Doing this by itself however, is not alone enough. Most banks will want to touch base with the borrower frequently. This opportunity also lends itself to discussing business progress and issues that may have come up. In addition to this, the bank will require regular reports on sales and progress among other things.

Getting the right funding you need means viewing your business as a year-round project. Show lenders that you have a broad outlook onto the cyclical nature of your business by using off-season times to grow your business, increase efficiency and expand the outreach of your business. Optimize your revenue during peak season and use this to re-invest in your business. Thinking of your business as year-round rather than focusing only on peak season will help you keep solid goals in mind so you can plan better for future business opportunities.

By Juliana Schneider