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5 Questions Loan Officers Ask Seasonal Businesses

Steven

5 min. read

Updated December 3, 2024

Whether summer or winter is your business’s busiest season, all seasonal businesses are best positioned for success when peak-season revenue can be used to fuel growth, rather than cover past expenses.

But with the downtime that is a part of running seasonal businesses, how can you ensure that you have the funds needed to optimize in-season opportunities and keep cash flow solid in the slow times?

If you’ve been monitoring your cash flow and you get out ahead of the problem before you’re in a slow-season crisis, asking your bank for a small business loan can be an effective solution. When it comes to getting a loan, many seasonal business owners face extra scrutiny, because lenders know that cyclical downtimes can result in financial distress.

To help your seasonal businesses prepare for a meeting with a lender, we’ve compiled five questions to expect from a loan officer—things that you’ll want to include in your business plan as well. How you answer each can reveal fresh insights to help your business get stronger, whatever the season.

1. How are your business expenses covered in the offseason?

Even if your business closes down completely in its offseason, lenders know that there are likely still bills to be paid, such as rent, utilities, and possibly some year-round staff, as well as a salary for yourself. 

Typically, there are three ways to cover these expenses:

Profits generated during the previous busy season

This is the ideal situation so that your business would still have enough funds for a strong start to the next business cycle. But if you use all of your profits to cover expenses without anything left to reinvest next year, you can hinder long-term growth. 

Using short-term debt, such as credit cards and lines of credit, to hold you over until the next peak season

If you use short-term debt to cover bills, then you position your business for longer-term struggle. You’ll always start your new busy season looking backward, not forward. And with short-term debt, your payments are likely to be higher and more difficult to budget.

A small business loan

A small business loan can make it easier to budget for expenses while also providing a cushion that can help you start strong each season. Keep in mind that the best time to get the loan is before you need it—that way, you’re more likely to shop around for the best loan terms and are less likely to get saddled with a predatory loan. 

From the lenders’ perspective, applying before you’re financially pinched shows that you’re proactive about running and managing your business. 

2. What controls do you have to ensure enough cash to cover slow periods?

With all businesses, but most importantly with seasonal businesses, it’s essential to manage cash flow for extended slow periods. Try to minimize outstanding short-term debt (as opposed to longer-term debt, like small business loans) by paying bills before you close for the season. 

Show potential lenders the systems that you have a plan in place for managing inventory, staff, marketing, and other components.

3. Have you thought of options to generate revenue in the off-season?

Businesses are seasonal for various reasons, typically based on weather, location, or customer preferences. Lenders understand this basic premise, but they’ll want to know if you’ve considered revenue-generating options to boost your cash flow for the offseason. 

For example, a landscaper might do snow plowing during the winter, while a ski resort could offer summertime mountain-biking and hiking excursions on its slopes.

Even if your core business is seasonal, brands are year-round. Customers who love you during the summer still think about your business in the winter (and vice versa). Capitalize on that through online sales of goods that make sense for your business and help build your brand while generating year-round income. 

4. What’s the cash flow requirement to operate during peak season, and how do you finance it?

Lenders know that you can’t have a successful peak season if you don’t have cash on hand to invest pre-season, and they’ll want to know what it takes to get your business up and running during prime time.

In this way, they can see if you’re primarily using new money to pay old bills, or if you’re positioned to optimize peak opportunities through sufficient staffing, fresh inventory and offerings, marketing, advertising, and other business development opportunities. When requesting a loan, be sure to think broadly about your business’s needs and cash flow, rather than just aiming to cover slow-season needs. 

5. What are your staffing needs, and how do you manage expenses for staffing?

Employees represent the largest expense for nearly every business, and for seasonal businesses, you repeatedly have to invest more each year in hiring, training, retention, and seasonal separation. Lenders want to know that you manage these expenses wisely. 

Be sure to explain what your peak staffing needs are, how you get and keep good employees and what happens to them in the offseason. If there are people you pay year-round so that you can keep valuable employees, show how you’ll cover that expense without risking your business’s stability. And show lenders how, during slower months, you plan to simplify and organize training processes and other operational matters to maximize efficiencies and minimize costs.

Seasonal operations still require year-round management and planning

Even if your business only has its doors open for a few wonderful months of summer or winter, there’s still so much that you can and should do year-round:

• •Use the quieter months to evaluate the past season and plan for growth the next.
• •Continue to build your brand by staying in touch with the customers and communities that matter to your business.
• •If you know your business will struggle financially through the slow times, plan ahead and meet with lenders about funding options. There are many small business loans with great rates and terms that make it easier during slow times and help you get a great start to peak season.

Many owners of successful seasonal businesses don’t think of their businesses as “seasonal” at all. Instead, they recognize the cyclical nature of their operations and use slower times to find ways to build operational efficiencies, while using busier times to optimize revenue-generating opportunities. Show prospective lenders that you think along those lines, too, and you’ll better position your business for the funding you need.

Steven

Steven Cohen is president of Excelsior Growth Fund (EGF), which helps New York State small businesses grow by providing streamlined access to business loans and advisory services. Excelsior Growth Fund is a not-for-profit 501(c)(3) and certified by the U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Steven has a bachelor’s degree from UC Berkeley and a master’s in public administration from Harvard’s Kennedy School.