When To Take A Business Loan Based On Seasonal Cash Cycles?

If you run a business, then you must know that not every business earns steadily throughout the year. Most companies like yours depend on specific seasons for maximum earnings. 

Jessica runs a women’s ethnic wear store. Her sales shoot up between September and January due to the festive and wedding seasons. However, from March to July, her store experiences a sharp decline in foot traffic.

In August 2023, she took a loan of ₹6 lakh to expand her stock and upgrade the shop lighting. By December, she had generated over ₹19 lakh in revenue and repaid the loan within the agreed-upon tenure.

This success was not just due to the loan amount, but the difference made by timing. If business loans are timed properly, they can help you manage both peak demand and slow periods effectively.

What Is A Seasonal Cash Flow?

If your business sees demand during certain times of the year and faces a slowdown during the rest then it is following seasonal cycles. The income of such businesses is not steady month to month, which can lead to cash shortages during lean periods.

Such cycles make it difficult to manage cash flow, particularly when expenses remain fixed year-round. Some common examples include:

• Cold drink distributors (summer)
• Ice cream manufacturers (April to July)
• Stationery businesses (April to June)
• Sweets and snacks shops (peak during festivals)
• Travel agencies (October to March)

When Should You Opt For A Business Loan?

1. Before the Rush Starts

If you take a loan two to three months before your high-demand period, it will help you to prepare well. You can:

• Buy inventory
• Increase staff
• Upgrade tools
• Run marketing campaigns

2. During Slow Months

The low season of your business is ideal for:

• Maintenance
• Small-scale renovations
• Testing new products

Since the footfall is low, there is less disruption.

3. To Handle Regular Expenses

Even if sales of your business for some months are low, you still need to pay:

• Rent
• Salaries
• Electricity
• Vendor Bills

A loan for working capital will help you fulfil these.

4. To Take Advantage of Bulk Discounts

Many suppliers offer cheaper rates when demand is low. If you take a loan during this time then it will help you to buy raw materials at lower prices.

Read More – Effective Ways to Use a Business Loan

Ideal Loan Timing For Different Seasonal Businesses
 

Things To Keep In Mind Before Applying

a. Match Loan Tenure with Cash Inflow

You must plan to repay your loan during or immediately after your peak season. Suppose, if you earn most between September and December then you can borrow in July and repay by January.

b. Choose the Right Loan Type
 

c. Evaluate Seasonal Trends

You should look at the past 2 to 3 years. You need to identify the three best months and two slowest months.

Now, you need to calculate average expenses in the slow months to estimate how much support you need.

Benefits Of Timed Loans

• It helps you avoid delays in completing your orders during busy months.
• It prevents your business from falling behind on bills during off months.
• It helps you make better deals with suppliers by paying on time.
• It will keep your business running smoothly year-round.
• You will be able to get better credit terms by showing a timely repayment history.

Planning Table For Seasonal Businesses

Also Read - Find Out Which Is Cheaper Overdraft vs. Personal Loan

If you have a seasonal business, then you can use the following planning table for your business:
 

Financial Advantage For Seasonal Enterprises
 

Final Thoughts

Do you know the key to using loans wisely in your seasonal businesses? Well, the answer is timing. If you borrow too late then you might miss the season. And if you borrow too early without a proper repayment plan, then you will risk unnecessary interest costs.

You know the sweet spot for your business to borrow is just ahead of your peak, and using the funds for focused needs like:

• Stock
• Staff
• Repairs
• Promotions

If your business cycle is predictable, then you can easily plan your borrowing around it. 

FAQs

1. Can I use a loan to advertise before a season?

Absolutely. It’s a smart use of borrowed funds.

2. Do lenders understand seasonal cash gaps?

Some lenders specialise in funding seasonal models.

3. Are there specific business loans for seasonal needs?

Many lenders offer loans tailored for short-term or peak-time use.

4. What is the ideal repayment period for seasonal business loans?

Match repayment with your peak revenue months.

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LoansJagat Team

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