As the owner of a seasonal business, you understand the specific capital challenges that come with this form of business. Maximizing your earning potential and putting your business in the way of success is critical during peak seasons. If your business experiences an increase in demand for its products or services during certain times of the year, you don’t want to be low on cash flow. It’s always tempting to overspend when you have plenty of revenue coming in, but thinking of the big picture and sticking to a budget can be a better plan of attack.
Just like many other small businesses, you may find it important to finance your business during the busy season to bridge the slow season and the new busy season. It is not unusual for all types and sizes of businesses to depend on borrowed working capital at some point during the year to fund expansion projects, maintain business operations, or bridge seasons. For instance, if you run an accounting business, you can take out a loan to pay additional contract staff that you’ll need to get through tax season. Moreover, if you operate a landscaping business, you can buy important tools and equipment needed to get the jobs done. Business financing allows business owners to make the most out of the busy season without worrying about inadequate cash flow.
If your business uses credit card payments, business bank accounts or depends on short-term financing, there are some things you can do to prepare your business for financing during your business season, and make that time less stressful. Here are some important things to take into account if you’re considering financing your business during a slack season:
Living through a period of significant change presents challenges as well as opportunities for businesses, and this is the reason why it’s extremely important to look ahead and plan for the future. This could imply setting aside some cash whenever the cash flow is good to cover for days when it is not. It could mean identifying the need for funding and working smart to improve your business credit profile now, so that you may have more options accessible to you when you need to borrow a little working capital.
As a small business owner, forecasting helps prevent your business from becoming a victim of circumstance. It is more effective to single out issues and handle them in a more precise manner before they arise than to deal with an unexpected crisis. Furthermore, robust planning gives reassurance to potential lenders who are keen on seeing a solid financial model and a defined strategy for growth. Most of them want the assurance that you expect challenges and have a plan in place as to how to handle these challenges. Moreover, lenders are also interested to see that you’ve got the management in place necessary to overcome any form of hindrances that might come your way.
If you’re looking to expand your business, develop an additional product line, or enter new markets, it’s imperative that you look ahead and explore both positives and potential challenges your business might encounter. This will not only help you stay on top of the game but also develop a prosperous, agile business with the capacity to respond to changing circumstances effectively. Maybe the biggest key to seeking business funding is coming up with a reliable business plan for the next two years. It’s important to figure out what you need the financing for and how much each of those things will cost. Get estimates from contractors or equipment dealers, and if you are a startup, consider the amount that you may outlay, such as franchise fees, hiring, and more.
Consider Borrowing Before You Run Out of Cash
When you submit your loan application, most business lenders will want to be assured that your business has the revenue to support the repayment plan stipulated. They will most likely want to take a look at several months’ worth of your business bank statements and credit card statements in order to establish whether or not your cash flow can fund the periodic payments. If you delay doing the application when the revenue stream of your business has greatly dwindled and you’re amid the bridge season, you may be considered a high-risk borrower.
Many lenders can’t provide financing to a business at risk of either ceasing operations or going bankrupt. If, for instance, you tell the lender that your business is doing great, but you’re collecting every 60 days instead of every 30 days, they are most likely to extend your credit. It’s therefore important to pay close attention to your projections so that you will know ahead of time if your business is going to hit a cash crunch.
Keep Your Financial Statements in Order
Depending on the size of your merchant financing, your potential lender will review your business’ accounting records and financial statements. As such, it’s important that makes sure that the documents are complete, correct, detailed, including income and loss statements, balance sheets, and cash flow statements. The financier will evaluate gross margin, cash flow, debt-to-equity ratio, account receivables, account payables, and more. Be prepared to respond to questions on the mentioned topics. Consider having your in-house account scrutinize your financial statements to forestall issues likely to be raised by a lender.
Demonstrate that Your Business Generates Solid Cash Flow
Since you’re an existing business, most lenders would want to see that you have cash flow enough to repay the loan. They will analyze your past tax returns and existing debt. Being in a position to demonstrate that your business has a steady cash flow, especially when it comes to credit card payments is a way of showing the potential lenders that your business can generate enough money to service the loan, pay your employees, and handle other important tasks in due time. You should be able to illustrate to your potential lender what foreseeable cash flow you have coming in. You can do this by providing tax returns, financial statements, and bank statements. These documents provide the lender with a historical perspective of the performance as well as the liquidity of your business. You can also expect questions from the lender about fluctuations in cash flow. If your cash dropped during the slow and bridge season, provide an explanation beforehand.
Borrowing to bridge to finance your business during the busy season can be complex and necessitates some extra thought. It is imperative to ensure that you will still have the revenue required to service the merchant financing. Otherwise, this would have a negative impact on your business if more of your revenue will have to repay the merchant financing. So, don’t borrow today if you’re sure there will not be enough cash flow to make your merchant financing tomorrow.
Borrow What Your Business Needs
Obtaining merchant financing can be the only fuel your business needs to get to the next level success. However, it’s important that you prepare yourself and your business to get financing and ensure that it is the best option for your business. When financing your small business during the busy season, keep in mind that there are costs associated with borrowing. This means that borrowing more than what your business needs can cause more harm to you than good. During the peak season, you may have to tighten the belts a little. Also, just like that, you may have to cut back on some of the important tasks that help your business thrive during busy seasons. However, if you budget properly, you will be in a better position to bridge busy seasons in a less stressful manner. Set aside a portion of the loan amount to help you handle unexpected expenses during the full time to keep everyone busy.
Similarly, be sure not to borrow too little. While you are right to be cautious with the amount of money you borrow, make sure that you don’t low-ball the amount a project will cost. This can expose your business to a serious cash crunch if you bump into an unexpected expense. To avoid such situations, develop a cash flow forecast for each independent task. Thereafter, borrow a sufficient amount of money to make sure that you fully cover your project, unexpected contingencies, as well as operating capital necessary to run your business.
In essence, when doing your calculations, make sure that you get everything right. Most small business owners make mistakes when calculating the right financing amount. Some of these mistakes include overstating sales, understating taxes, forgetting expenses, and failing to plan for growth. You may want to consider adding 10% to 15% extra to your merchant finance request as a safety net, which you can reinvest the cash in your business to cover unpredicted events, cyclical lulls, or emergencies. Before approaching any lender, ensure that your financial projections align with your financing requests.
Understand Which Type of Business Financing You Need
If you’re thinking about financing your business during the busy season, you should have a clear picture of the type of financing that will work best for your small business. Applying for an extremely scrutinized financing such as Small Business Administration Loan (SBA) when all you need is a merchant cash advance may significantly slow down the approval process and may even end in denial. Merchant financing, for instance, can be a great option when you need fast cash without having to deal with a strict requirement or lengthy approval procedures.
Some of the biggest myths surrounding small business financing are that it is expensive, hard to get approved, or takes too long to get done. However, the truth is that the approval process and loan conditions depend on the program you’re applying for. Keep in mind that small business loans have higher standards and usually take anywhere between 90 days to 1 year to get done. Also, the amount of documentation that you may be required to submit may vary. If you choose to apply for a line of credit or merchant cash advance, the necessary requirements and documentation are less strict.
Work on Improving Your Personal Credit Score
As a small business owner, many lenders will evaluate your creditworthiness based on your personal credit score. This means that the need to build and maintain an excellent personal credit score is critical. Despite the fact the most financiers have a tendency to weight the value of borrower’s personal credit score higher than others when evaluating business financing applications, most of them incorporate a review of your personal credit score to determine if you’re a high-risk borrower. This is common with early-stage businesses seeking their first business loan, and business with a few years under their belts but having financial struggles. If you want to get approved for that business loan with better interests, maximum limits, and loan terms, concentrate on building a robust business credit profile.
The FICO Score is the formula that lenders use to appraise the creditworthiness of their potential customers. Your FICO score is determined using the data collected by the consumer credit bureaus including Transunion, Experian, and Equifax. All these major credit bureaus utilize the same basic scale from 300 to 850 to rank one’s credit. However, the score assigned by one bureau may differ from the other. Having a good personal credit score is important for every small business owner.
With a lower credit score, your options will be limited when your time to borrow comes. The good thing is that most people tend to impact the metrics they pay attention to. Therefore, if you’re a business owner and have a less-than-perfect personal credit score, there is room for you to improve it by monitoring it, rectifying the areas that are bringing you down, as well as paying your personal obligations in due time. Focus on your personal credit profile and make improvements when you can. Building credit or improving your credit score is not a task you can accomplish overnight. So, if the busy season kicks in and your business is in dire need of extra cash, you may want to consider financing options for bad credit owners. This can help you handle the operation of your business as you work on getting your credit profile back on track for better financing options.
Choose Your Lender Wisely
Before you take on the hassle of applying for business financing, keep in mind that each financing option comes with its pros and cons. Large banks, for instance, are ever preoccupied with bigger clients, because for them, large loans translate to larger profits. Also, banks tend to have lengthy and strict approval processes, which might work against you if you’re looking for fast cash to have your business prepared before the peak season kicks in. Be sure to shop around and explore alternative lending options. Don’t sit easy, assuming that your vendor or bank will offer you the best terms. Make sure that compare rates, fees, as well as options and use only established lenders.
Some large banks may have significant personnel who facilitates small business loans. Nevertheless, the same large banks are typically bound by high qualifiers, which is a way to eliminate small businesses. On the contrary, most alternative lenders are normally built upon personal relationships. For instance, meeting a lender may offer some flexibility to place a narrative around your financing application.
The Bottom Line
Anticipating the need for business financing with a strategic approach to borrowing makes total sense at several levels. For instance, it helps you as the business owner to be less reactionary, which means you can better prepare for a slow or busy season and apply for financing when it makes the most sense. Applying for a loan in the midst of a slow season when cash flow has dropped is not always the best thing to do. Moreover, taking a strategic approach to borrowing offers you the opportunity to forecast your business financial needs, gives you time to analyze your current credit situation and allows you to take action to improve a weak business profile or even the odds of an approval. Think ahead and plan for the ups and downs to avoid making reactionary decisions that can do more harm than good.
Prudently managing operational, cash, and financing need during your busy season will allow you to keep your business profitable even when you’re experiencing a low season. Financing is a valuable tool for many businesses as it helps them grow their business even if it’s seasonal. Business loans are accessible from numerous different lenders with countless options tailored to the financial situation of your business, especially when you’re expecting a significant boom in business. Anticipating what exactly these lenders will review and require beforehand will help you grow your chances of getting the right financing option.
Find Merchant Financing Near Me
If you’re looking for a small business loan to support business operation during your busy, consider getting merchant financing. Wide Merchant Group offers merchant cash advances that are flexible, require minimal paperwork, and only take 24-48 hours to get approved. Contact us today at 800-630-4214 or fill our online contact form to learn more about our program.