Holiday shoppers and wintry weather could have a positive or negative effect on businesses, depending on the industry. Retailers, for example, could experience a rush of customer traffic during the holidays, while business could slow down for weather-affected companies, like oil well drillers who can’t work when the ground freezes.

Because the winter months can put a strain on small businesses of all kinds, it is a prime time of year to secure financing. Seasonal business loans could make it easier to keep up with the demands of the holiday season, or help you cover regular expenses if business slows down.

Before you find your business in a tight spot, keep reading to find out how you can obtain a seasonal business loan or other types of holiday financing.

Types of seasonal business loans

There are several kinds of business financing options that could be useful during the holidays, and these products could be available from traditional banks, online alternative business lenders or financing companies. Here are a few types of funding for which you could apply to meet your seasonal business needs.

Business line of credit

A business line of credit gives you access to a set amount of money that you could draw from as needed. You would only pay interest on what you actually borrow, and the full amount would become available again as soon as you repay your debt.

Lines of credit can be both secured and unsecured, depending on whether you provide business assets as collateral. A secured line of credit would require collateral, which means the lender could seize your assets if you don’t repay your debt. You could receive a lower interest rate and higher credit limit, though, because the collateral would reduce the risk for the lender. An unsecured line of credit wouldn’t require collateral, which would not reduce risk for the lender and could result in a higher interest rate and lower credit limit.

Best for: General business needs

A line of credit is a common seasonal financing option for business owners. Oftentimes, business owners need a quick infusion of capital during the holiday season that they’ll soon be able to pay back. A line of credit isn’t suited for long-term financing, so it would be a better option for business owners who expect to quickly generate capital during their busy season to repay debt.

“It all depends on the seasonal needs. There’s peaks and valleys and that’s where those lines of credit help them,” said Larry Rush, a mentor for SCORE, which partners with the U.S. Small Business Administration to provide free small business mentorship.

Our pick: Kabbage

Kabbage, an online business lender, offers lines of credit up to $250,000 and same-day approval. You could qualify in minutes and would have 6, 12 or 18 months to pay off each withdrawal from your credit line. Kabbage charges a monthly fee ranging from 1.5% to 10%, depending on your business performance. Each month, you’d owe an equal portion of your balance plus the fee.

To qualify, you need:

  • One year in business
  • $50,000 in annual revenue or $4,200 in monthly revenue

Accounts receivable financing

To bring in extra funding, businesses can turn their accounts receivable and unpaid invoices into cash. A business owner would work with a financing or factoring company to get an advance on unpaid invoices and accounts receivable, which would act as collateral. The financing company would buy a percentage of those unpaid accounts receivable in exchange for cash, then collect a fee once your customers make payments.

Factoring companies also provide merchant cash advances, a similar product. With a merchant cash advance, you would sell a portion of your receivables (typically credit card sales) in exchange for funding. The company would then take a fixed percentage of your sales until the debt is paid back.

Best for: Businesses with a high volume of credit card sales or invoices

Businesses that bring in significant income through invoices or credit card sales could benefit from this type of financing on a seasonal basis. Accounts receivable financing and merchant cash advances are typically expensive, but they would provide fast access to funding, according to Rush.

“It’s not something that’s widely used,” he said. “But many times, when the business is in a jam, I’ve seen companies with large receivables on a seasonal basis go to a factoring company to get cash.”

Our pick: BlueVine

BlueVine is an online lender that provides invoice factoring up to $5,000,000. BlueVine can advance up to 85% to 90% of your unpaid invoices. Weekly interest rates start at 0.25% for well-qualified borrowers, as of Oct 7, 2019. When customers pay invoices, you would receive the remaining amount minus BlueVine’s fee.

To be eligible, you must have:

Inventory financing

Inventory financing is designed for the purchase of goods and products, and it comes in various forms. A short-term business loan or business line of credit could be considered inventory financing if the inventory itself acts as collateral. Lenders may only finance a percentage of the cost of inventory — usually up to 80% — and the funding amount would be based on the value of the items.

A line of credit would allow you to borrow money to make purchases as needed, while a short-term loan would provide a sum of funding to purchase inventory in bulk. Short-term loans typically require daily or weekly repayment terms, and could come with higher interest rates than lines of credit. A line of credit would be best for ongoing seasonal or year-round needs, while a loan may be better for making a large one-time purchase.

Best for: Retailers or wholesalers with large amounts of inventory

Businesses with seasonal inventory needs could rely on short-term loans or lines of credit to stock up on products ahead of the holiday season. But be careful, Rush advised, not to purchase more inventory than you can sell during your busy season, especially near the end of the year. Carrying inventory into the new year could affect your annual business taxes.

“Make sure you blow out dead inventory whenever you can to properly budget your business,” Rush said.

Our pick: OnDeck

OnDeck, another online lender, offers inventory loans for small business owners. OnDeck’s short-term loans range from $5,000 to $500,000, and you could receive same-day funding if approved. Annual interest rates start at 9.99%. OnDeck also offers lines of credit between $6,000 and $100,000, with annual interest rates starting at 13.99%.

Eligible business owners must meet the following requirements:

    • One year in business
    • $100,000 in annual revenue
    • 600 personal credit score

When to apply for holiday financing

Business owners should secure seasonal financing before the holidays arrive — Rush even suggested as early as June, in some cases. But you could also apply for funding in the fall months to ensure you have money to spend ahead of the holidays.

You may want to consider the speed at which you could receive financing as well, he said. For instance, if you notice a certain item is selling quickly, you might need fast funding to buy additional inventory to avoid running out.

The lender and type of financing you choose would affect the time to funding. An online alternative business lender could provide lines of credit and short-term loans more quickly than a traditional bank. An online lender could also approve your application for financing in a few hours, rather than a few weeks.

Merchant cash advances from online lenders or financing companies are among the fastest financing options for business owners. Eligibility requirements are typically lenient, and the underwriting process to review applications is less involved than it would be for a standard business loan. However, fast time to funding comes at a cost — merchant cash advances are often expensive and risky because of the quick repayment schedule.

The application process for accounts receivable financing is also quick. A financing or factoring company would usually require you to fill out an online application, and you could receive an offer in a few days. However, again, you could face somewhat high fees.

Is seasonal financing right for your business?

The winter months could deter customers from some seasonal small businesses. Others may see a boost from holiday shoppers. If you know you’ll see a seasonal shift, effective budgeting throughout the year could help you get through the holidays without financing. But if you unexpectedly anticipate struggling to keep up with demand or paying bills despite a dip in customers, seasonal business loans could provide reprieve.

Depending on your business needs, you could secure a business line of credit, inventory financing or accounts receivable financing from a lender or financing company. A line of credit would let you access funds as you need money, while accounts receivable financing would allow you to leverage your unpaid invoice for funding. Inventory financing could provide a lump sum of capital to purchase products.

Be sure not to buy more inventory than you can sell before the end of the year, though. Otherwise, you could end up owing taxes on any unsold inventory that you carry into the new year.

Additionally, when applying for financing, take note of the expected time to funding. Be sure to give yourself plenty of time to secure the right financing for your business before the holiday season begins.

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This article originally appeared on MagnifyMoney, a media brand owned by LendingTree.