Seven Ways To Take Advantage of a Small Business Loan During the Holiday Season

October 13, 2022

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Retail sales go wild during the holidays, sometimes making it necessary for business owners to seek out a business loan during the holiday season. In fact, almost 20% of retail sales happen in November and December, according to the National Retail Federation. So how can small businesses take advantage of increased consumer demand during the end of the year?

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Make Sure to Create a Consistent Customer Experience

Almost 15% of all retail sales happen online, according to the U.S. Census Bureau. That number is rising: in 2016, that share was below 8%. Customers know that they will not be able to thumb through your wares on your website, but that doesn’t mean you shouldn’t do everything possible to ensure a consistent, pleasant experience for your online shoppers.

With that in mind, one way to use a small business loan is to shore up the e-commerce side of your retail business and ensure that customers who spend their money online are getting a seamless experience. There are a number of point-of-sale systems (POS systems) you can use within your store that keep inventory records in real time. They also can create customer profiles so that no matter where a customer buys a product from you, they’re able to receive future marketing communications.

When your in-store POS system and e-commerce platform work as one, you can be assured that you’re keeping proper track of your inventory, maximizing cash flow, and keeping your customers happy. However, those POS systems can be pricy, particularly the ones with the best e-commerce features. That’s why you may consider looking over your financing options. The right funding can make integration simple, cost-effective, and allow you to have the cash you need to meet your business needs. And speaking of meeting those business needs…

Boost Your Working Capital

Working capital is the amount of money left over once your company’s current outgoing obligations (debt payments, taxes, accounts payable, etc.) are subtracted from its current assets (cash, accounts receivable, any inventory that can be quickly liquidated…). In short, working capital is a simple measure of your company’s short-term financial status. If you’ve got lots of working capital it means you’ve got plenty of cash to cover your expenses. If any new, unexpected cost arises, companies with significant working capital won’t need to sweat.

However, business owners with low working capital have extra headaches to consider. What if you need to replace a broken piece of equipment? Does the decrease in cash flow hamstring your ability to maneuver? Or what if a supplier comes to you with an opportunity to make a large inventory purchase at a bulk discount? If you’ve got insufficient working capital, you might not be able to take advantage of the discount, thus losing out on a windfall.

Many small business owners use lending as a way to boost that working capital, particularly when your inventory and staffing expenses will be at their greatest: during the holiday busy season.

Make Extra Hires for the Holiday Season

Business financing can also be used to fund hires. Whether your company is entirely online or you’ve got a main street storefront, there’s likely to be lots to do once December rolls around. So many borrowers take their small business loans and use them to boost staffing.

If you’re operating online, that extra staffing might be people doing shipping or warehousing. It could be a web developer, social media specialist, or content writer. If you’ve got a physical store maybe you can hire a few associates to ensure that each customer gets proper attention, or maybe you can hire a second manager to give your original manager a break.

Extra hands can lead to extra sales. Using a small business loan to make hires is a great way to make sure that you’re getting a return on that debt.

Finance Inventory for the Busy Season

You don’t want customers to enter your store during the busiest time of year to find empty shelves. That’s why many types of loans given out to business owners during the holidays are earmarked specifically for inventory financing.

There are types of financing created specifically for inventory financing. Some of these include loans that hold the new inventory as collateral. That means that if you’re unable to make payments on the debt taken out to fund inventory, the lender will simply repossess the inventory in question. They sell it, and they’re protected from undue financial damage.

Other businesses use a business line of credit to purchase inventory. A business line of credit works a lot like a credit card. After the application process, a financial institution will off your company a credit limit. You can draw on that line of credit up to the limit and only pay interest and make payments on what you spend.

The best part is that if you pay down your business line of credit, you can essentially re-borrow that money. It’s a great system for seasonal inventory purchases. You stock up using a line of credit, boost your sales during the busy period, and then pay the line of credit back down with proceeds from your increase in sales. Then the cycle can repeat.

Regardless of the exact type of loan you choose, stocking up on your inventory during the holidays is a highly rewarding use of the newly-acquired funds.

Create Social Media Posts to Get the Word Out

Some businesses bring in a social media manager to help them get through the holidays. A lot can change during this pivotal part of the calendar: you may have new customers, new products, and a significant boost to your sales.

While it may seem like an exorbitant use of cash, remember that during your busiest time, you’ll have a lot of other things to keep your eyes on: your inventory, your staff, your finances, your customers, and your bottom line. Letting a third party handle getting the word out about your business can mean a renewed focus on the business itself.

Social media can be used to show off your new products or hot sales, let customers know if you’ve got to change hours to account for holidays and inventory restrictions, or even highlight testimonials from your satisfied customers. No matter how you use it, taking out some form of business loan to pay for a specialist can drive customers in your door, paying for itself.

Upgrade Your Equipment

Many retailers need specialized equipment to do business. Liquor stores need large refrigerators, for example. But every retailer needs equipment: you need display cases to show off your goods, you need a security system to make sure no one can access your inventory, and you likely need a computer and POS system to keep your books and control your staffing and inventory. An upgrade during the busy season can help your company run more smoothly and more profitably as traffic increases.

Equipment financing exists for just this reason. In an equipment loan, you apply for very specifically-intended financing. If approved, the borrower provides a down payment, and the lender finances the remaining balance. The lender then holds the newly-purchased equipment as collateral. That means that if the business is unable to make payments, they can repossess and sell the equipment.

Equipment loans can be highly effective for new businesses or companies with bad credit. That’s because the lender is protected from losing too much money. If a borrower defaults on a regular unsecured bank loan, the bank loses every penny that hasn’t been repaid. That’s why eligibility criteria are much more strict on a typical loan than on an equipment loan. Most equipment will retain some degree of value after its sale.

Check On Your Web Presence

Your POS system and social media aren’t the only parts of your web presence that matter (or that might require a small business loan). You’ll also want to check up on a few other areas;

  • Google My Business is the first thing many potential customers will see about your business. If your business pops up when they enter an appropriate search, you’ll want to ensure that they’re seeing the right information: the right website link, the right hours, and the right location. Setting up GMB is simple, but vital. You won’t make a sale from a great GMB setup alone, but you can certainly send customers to your competitors with a poor one.

  • Your website itself. Are you still using the same basic site you set up in 2006? If so, customers who venture onto your website might believe you (and your products) are behind the times. Check out any number of website-building tools and services available to small business owners. Having a fast-loading, aesthetically pleasing website shows your customers that you care about the details.

Use the Right Financing for your Expense

Once you know how you want to spend your business financing, you should make sure you know the right type of loan. The types of loans your company qualifies for will vary on factors like whether you’re a startup or established business, what you’re planning to spend the money on, and your credit score.

We’ve already touched on lines of credit, equipment financing, and inventory financing. But what other types of business financing are out there?


Term Loans

In a traditional term loan, a borrower goes through an application process with a financial institution. That institution can be a bank, a credit union, or even an online lender. If the lender decides the borrower is likely to repay its debts, they approve a particular loan amount, and the borrower makes monthly payments until the loan and interest on that loan are paid back in full.

SBA Loans

SBA loans work a lot like traditional term loans with one key difference: the U.S. Small Business Administration guarantees them. If a borrower defaults on an SBA loan, up to 85% of the loan will be covered by taxpayer dollars. There are three main forms of SBA loans:

  • SBA 7(a) loans fund term loans of up to $5 million and have interest rates based on the current U.S. prime interest rate, or the rate at which the Fed lends money to its most creditworthy borrowers.

  • SBA 504 loans are used to make long-term upgrades to land, facilities, or utilities that promote job creation.

  • SBA microloans are loans of up to $50,000 that are offered through small non-profit local lenders.

Business Credit Cards

Working much like a personal credit card, business credit cards allow a revolving debt limit where the borrower pays interest only on what’s borrowed. Unlike a line of credit, however, a business credit card is typically used to make purchases directly, while a line of credit can be withdrawn directly into your business’s bank account.

Alternative Financing:

Merchant Cash Advances

By definition, a merchant cash advance (MCA) is not a loan. Instead, an MCA provider purchases a share of your company’s future credit and debit card sales, often deducted daily.

MCAs use a factor rate, which is typically a number between 1 and 2. You multiply the factor rate by the size of the advance, and that’s the repayment total. If you receive a $10,000 MCA at a factor rate of 1.1, you’ll repay $11,000.

There’s no benefit to paying back an MCA quickly, and you’ll make payments on each and every transaction, so they can create a shortage of cash flow. On the other hand, merchant cash advances are available to businesses even with poor credit and fill sometimes within a single business day.

Final Thoughts

The holidays are an exciting time for any retail business. There are many sales to make, new customers to win over, and opportunities abound to end the year on a high note. Seeking out the right small business loan can help ensure that your company has the capital it needs to take full advantage of the year-end increase in consumer demand.

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