Businesses everywhere are gearing up for the most important time of the year: the holiday season, which begins earlier and earlier as eCommerce retailers and brick-and-mortar small businesses compete to win shoppers’ attention.
And in 2017, the holiday shopping season is expected to be bigger than ever, according to the National Retail Federation.
If you’re a business owner who experienced dips in sales during the year, November and December are the months to make up for your losses. But many small and medium businesses lack the cash on hand to capitalize on the spike in demand.
The last thing you want during the holidays is to see customers flock to your store and online channels, only to not be able to meet demand and lose out on valuable sales. That can be the difference between success and failure.
One way that businesses make sure they have enough liquid capital to boost their inventory during such a critical period is to take out a loan.
Taking out a loan to cover the ebb in profits might seem like a scary proposition, but it’s something businesses do all the time, regardless of the time of year. Maybe you’re owed payment from another business, or you see a sale on the materials used to make your inventory that would be great to buy now, in bulk.
Whatever your reason, taking out a business loan is common practice, and using your fixed assets to secure the loan is the best way to avoid high interest rates and maintain friendly repayment terms.
How does getting a commercial loan work?
As a business owner, you can apply for a commercial loan through any number of lending institutions, from banks to credit unions to alternative online lenders.
Depending on your business credit score, your personal credit score, the value of your collateral, the industry you’re in, and what you plan on using the loan for, you’ll likely be able to compare offers from a variety of lenders to see which one best suits your needs.
When it comes to online lenders, you can usually get pre-approved for a loan by filling out a quick form and getting a quote. You can also visit the Small Business Administration to see what lending options are available to you—the SBA is considered the best source of funding, since the loans they approve are government-backed and borrower-friendly.
What might you use a loan for during the holidays?
As mentioned above, a loan can be used to purchase lots of inventory in advance of the holiday season. There are even commercial loans with this aim specifically in mind: “inventory financing” is a loan or line of credit made for businesses to use while purchasing products for sale.
But that’s not the only reason why you might need to boost your on-hand cash during such a critical period.
Maybe you need to purchase equipment, such as trucks to transport your inventory, or machinery, drones, or production equipment for use in the warehouse.
Related Article: 6 Things You Might Not Know About Asset ManagementPerhaps you’re interested in hiring some part-time help to help with the holiday demand, and need a little extra money to cover inflated payroll costs.
Or it could just be that you need extra working capital to cover the extraneous costs that invariably pop up around this time of year. It’s up to you and your business needs.
What you should have in order to get a commercial loan
In order to secure a loan for your business, you’ll likely need collateral to put up as security. Common forms of collateral include your fixed assets, business inventory, real property (not “dirt,” or vacant land), or your own cash savings.
If you’re going to use your assets or inventory as collateral, make sure you’ve invested in a quality fixed asset and/or inventory management system, to keep track of the condition of your assets or the total amount of your stock, respectively.
Fixed asset management software is one of those consistently overlooked applications that businesses either never considered or feel they can do without.
Long-term assets, as opposed to inventory, are not only expected to be used in the production of income, but are supposed to remain on the books for at least a year, and typically longer. That means businesses have to account for their fixed assets’ whereabouts, depreciation status on both their internal books and tax ledger, and condition, on a near-constant basis.
That means that if you take out a loan based on having invested a certain amount in your fixed assets—a certain number of laptops, vehicles, heavy machinery—and it turns out that number is off because some assets have turned into “ghosts” or are otherwise unusable, you’ll be in trouble with your lender, and potentially the law.
Inventory management software is a bit more popularly used in businesses around the world—mostly because companies like Amazon, Target, and Wal-Mart have pushed small and medium-sized businesses to be more diligent than ever about on-time deliveries of exact amounts. But the same risk applies if you use business inventory as collateral and are trying to track your numbers by hand or with spreadsheets—you could be off, big or small, and that’s a problem from a sales standpoint (you can’t sell inventory you don’t have) as well as from a borrowing standpoint.
Fixed asset management software is a good investment for tracking your assets year-round—it can help prevent employee theft or misuse; it can help lessen the burden on your accounting team by automatically calculating depreciation over time; it can alert your team about upcoming maintenance needs, and more. Knowing where your investments are and how they’re doing is good for your internal records, not just for when you’re asking others to extend you a loan.
There are lots of options if you want to give yourself some financial wiggle room for the holidays. You can take out a personal loan, either secured or unsecured. You can visit peer-to-peer lending sites to see who’d be willing to make a short-term investment in your business.
Or you can go through traditional or alternative lenders and borrow against your current assets, with the goal of increasing those assets mightily during the holiday season.
Either way, make sure you have enough liquid cash and solid inventory to get yourself through this trying, difficult, but ultimately rewarding (and hopefully lucrative) time of the year. Doing so will set your business up for success in the months and hopefully years to come.
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