Financing Options to Weather the Highs and Lows of Seasonal Businesses

 

Like weather patterns, businesses go through seasons, too. Some businesses are even seasonal by design, like shops that sell Christmas decorations or other holiday-specific items, or farms, which go through cycles of planting and harvesting.

To meet spikes in demand during busy periods and survive drops in revenue during lean seasons, some businesses look to various financing solutions that can ease the impact of these fluctuations. Here’s a look at what’s out there, and how to pick the financing option that’s right for you.

The Unique Challenges of Running a Seasonal Business

Seasonal businesses operate predominantly or even exclusively during specific times of the year. This means they face a different set of challenges compared to year-round businesses, such as:

• Maintaining a healthy cash flow on an inconsistent income

Seasonal businesses need to have enough funds to cover expenses throughout lean seasons, and enough cash to fulfil increased consumer demand during peak seasons.

• Hiring issues

They need to train employees quickly because they tend to have shorter operating periods compared to other businesses. Employee turnover rates can also be higher than usual, as employees may find work elsewhere during periods when a company’s manpower is not fully utilised.

• Weather and climate conditions

Many seasonal businesses are highly susceptible to weather events, and as such are also vulnerable to drastic, longer-term changes in climate.

 

How Seasonality Affects SMEs

But seasonally triggered fluctuations happen to other businesses as well. 

Our 2023 SME Digital Finance and Payments Behaviours Report on Southeast Asia found that small and medium enterprises (SMEs) tend to ramp up their search for additional financing through banking and financial products during peak seasons, indicative of a cash flow crunch. The most significant holidays were Christmas and Chinese New Year for SMEs in Malaysia and Singapore, and Tết Nguyên Đán for those in Vietnam.

For the majority of the SMEs we surveyed, the triggers for these cash flow fluctuations were a rise in consumer demand and an increase in raw material prices. Others needed more funds towards the end of the year to complete the previous year’s projects, implement planned activities for the coming year, and make key investments.

How to Bridge Seasonal Cash Flow Gaps

Fortunately, there are ways to mitigate the impact of seasonality:

• Preserve cash during off peak seasons so you can be better prepared for the peak seasons
• Gather data to forecast cash flow and demand – some helpful data points include raw material prices, product selling price, operational costs, and market surveys 
• Set up systems to manage inventory – for example, some businesses offer a pre-order option; others do cross-docking to optimise distribution, fulfilment, and inventory replenishment 
• Explore revenue streams that aren’t subject to seasonality – put your existing assets to good use, venture into products or services that complement your core business, or, if resources allow it, explore entirely new offerings; Christmas decoration stores, for instance, could sell ornaments for birthdays or other occasions, and beach resorts could offer corporate packages for training or team building activities during the off season.
• Whenever possible, anticipate workforce needs and start hiring early.

Aside from these, tapping on financing solutions may help. Some options available to SMEs include:

Financing Options for Seasonal Businesses
	What it is	Pros	Cons
Business term loan	Unsecured loan with monthly repayments Can be short- or long-term	Predictable costs Flexible in terms of how funds are used Successful repayment may improve your chances of accessing future funding Good source of quick funds to boost cashflow and overcome different challenges during the festive season	Requires regular, timely payments Longer-term loans may entail longer approvals, steeper requirements
Business credit card	A quick and convenient way to pay for both local and international business purchases	May help build business credit Can issue sub-cards to employees During peak season, credit limit lets businesses realise sales proceeds and repay when customer payments are in	The risk of spending more than you can comfortably repay
Trade financing examples:
Accounts receivable financing	Use unpaid invoices from your customers as collateral for a cash advance from a financing institution	Quick access to funds even if your customers take a while to pay May be kept confidential – your customers won’t know you’ve taken a loan using their invoice For high season, especially useful if you offer credit terms to buyers; issued invoices let you top-up cash flow from pending payments and reach more customers with the new cashflow infusion	Fees can be high
Accounts payable financing	A financing company settles payables upfront, for a fee; the business repays the financing company at a later date	Protects relationships with suppliers by ensuring timely payments Helps keep cash flow healthy during peak season by extending payment periods	Relies on suppliers’ cooperation; suppliers can choose not to accept the financing agreement

 

Which Financing Option is Best for You?

There are some things to keep in mind when considering the different ways to fill seasonal cash flow voids.

• Fast financing is often more expensive

Quick approvals typically mean higher interest rates. You’ll need to decide whether getting cash now is more important than getting more affordable rates later. Having a better handle on sales and spending projections can help you think about which option is most appropriate.

• Consider what you’ll achieve – and whether it’s worth it

Ask yourself: Will getting extra funding spell the difference between just breaking even and turning a profit, or can you manage without it?

• Make sure you have enough after peak season

Funds from financing institutions may cover seasonal gaps, helping you meet soaring consumer demand and weather dry months, but make sure you’re able to repay any financing you secured after the dust has settled.

• Check the eligibility criteria carefully and prepare early

Different providers have different requirements. There may also be varying eligibility criteria across products. Check if you’re eligible for the options you have your eyes on, and prepare requirements as early as possible.

 

Helping SMEs Manage Cash Flow Fluctuations

Cash flow is crucial for your business, especially for SMEs that are at the mercy of seasonal fluctuations. Financing can help you traverse the peaks and valleys of seasonal business with a bit more peace of mind.

While more traditional sources of funding may still be out of reach for many SMEs with limited credit and operating history, there are other available options tailor-made for their unique needs.

Funding Societies, a unified SME digital finance platform, works to bridge the financing gap for Southeast Asia SMEs.

To learn more about our financing solutions and find out which ones you’re eligible for, download our [connected eligibility checker asset TBA, as per the brief].

Want to take advantage of your credit score to get new financing for your business? You have several options. If you’re looking to borrow anywhere from s$100,000 to s$1,000,000, Funding Societies offers a range of loans, with or without collateral. Alternatively, if you’re looking for less but more flexible funding, apply for a revolving line of credit from Elevate. It gives you the freedom to draw down funds in any increment and spend it however you like: via bank transfer or the business cashback back card (you earn up to 1% cashback). A preliminary health check quiz is available here to kickstart your financing journey.