For many businesses, the holiday shopping season – generally the time between a week or two before Thanksgiving until Christmas – is the busiest and most profitable of the year. In 2022, for instance, holiday-related spending rose by as much as 7% compared to the year before
So you need to have enough money on hand to pay for stock, handle increased customers, and potentially pay for seasonal staff. This isn’t always so easy, so you’ll potentially need additional sources of funds.
With that in mind, let’s look at five ways you can creatively finance your small business if money is looking a little tight.
Explore a Business Line of Credit
One of the more underrated ways to help finance your small business during the holiday season is using a Business Line of Credit (LOC). It’s akin to a credit card but for business use, providing access to a set amount of funds. Businesses can draw from this pool as needed, up to the established limit, and only pay interest on the amount used.
Securing a Business LOC can be either secured or unsecured. A secured LOC requires collateral, whereas an unsecured LOC, not requiring collateral, is typically harder to get and may have higher interest rates due to increased lender risk.
The primary benefit of a Business LOC is its flexibility. It’s ideal for managing fluctuating cash flow, covering unexpected expenses, or capitalizing on sudden opportunities.
However, it can also pose risks. Improper management of a LOC can lead to overspending or a debt cycle. Interest rates for LOCs can be higher than traditional loans, especially for unsecured lines, with some lines even coming with maintenance or draw fees.
Get a Business Credit Card
A business credit card is a financial tool specifically designed for commercial use, providing a convenient way to manage business expenses and cash flow, especially useful for small businesses.
It offers a flexible line of credit, enabling businesses to purchase inventory or pay for services immediately while deferring payment to a later date. This can ease cash flow challenges common during this peak trading period.
Unlike personal credit cards, these are exclusively for business-related expenditures. But, no matter what, make sure you’re not mixing up your personal and business accounts. This can lead to credit issues, tax complications, and even legal liability in some cases.
Additionally, business credit cards often come with rewards and perks, like cashback or discounts, which can be advantageous for businesses ramping up operations for the holidays. They also simplify expense tracking and budget management, allowing you to have a clear overview of your finances and spending.
On the more strategic side of things, vendor financing is another popular solution for small business owners looking for a quick financial boost during the holidays. It involves negotiating with your suppliers to defer payment for inventory or services.
By paying the supplier after making sales, you can maintain inventory levels without straining your finances. It’s a practical solution but requires solid relationships with suppliers and clear agreements on payment terms. In essence, vendor financing can provide the flexibility small businesses need but is more intangible than other methods due to the trust factor.
Pursue Small Business Loans
Naturally, you can take out a small business loan, as well. Small business loans allow you to use your business’s equipment or profits as collateral, giving you some cash to spend as you need it, then make regular payments back to where the loan’s total over the rest of the year.
There are also special seasonal business loans that banks might offer if you can prove that your brand is a small seasonal business and requires cash for a short amount of time throughout the year. These are great business loans to pursue if your business fits the bill since they may have different qualification requirements compared to other, more long-term business loans (seasonal business loans are usually paid back more quickly).
Try Invoice Factoring
Still need a little extra money, or do you need to get creative with this year’s budget? If you’re like many small businesses, you might rely on invoices to make up the lion’s share of your income. Unfortunately, it can take some time for you to receive invoice payments, even from steady clients.
That’s also why it’s important to make sure you have alternatives at your disposal, such as invoice factoring solutions. Invoice factoring is when you sell unpaid invoices to factoring companies in exchange for a fee. The benefit? You get a cash advance for the invoice within a few business days, so you can spend that money immediately to pay staff salaries, pay for products, etc.
Meanwhile, when the customer eventually pays the outstanding invoice, the factoring company accepts the money and returns the invoice. It’s a good way to use the capital your business is owed if your brand doesn’t have that money in its coffers because of slow payments.
Bonus: If Needed, Work With Capital
What if a traditional business lender won’t work with your company, either because you don’t have a good credit score or your seasonal business is still too young to qualify? You might want to inquire about Gravity Capital–our quick and easy way to help businesses get the funding they need. With a Lite plan and multiple payment plans available, this financing option can provide you with the necessary flexibility during the chaotic holiday period.
All in all, these smart financing strategies could be just what your brand needs to get a little extra budgetary wiggle room and have enough cash to pay for increased operating expenses during the most profitable time of year. With enough money and time going around, you’ll also be able to introduce novelties to your business, new payment solutions, new products and, of course, more effective campaigns to capitalize on the holiday rush.