Seasonal business financing: 5 cash flow factors for short-term campaigns

Finding the right financing solution to cover short-term cash requirements can be a complex task for any small business. Whether you’re dealing with sudden surges in demand, regular seasonal spikes, or one-off campaigns, it’s important to have access to capital when you need it most. 

Thankfully, there are suitable options for additional cash in the short term. 

This article explains how seasonal financing works, how it’s used in practice, and how you can access it. We also look at its advantages and disadvantages compared with other short-term loan or factoring solutions.

#1 - What is seasonal or campaign financing?

To understand this type of business financing, it’s best to think about campaigns. While these can be seasonal upticks or dips, there are other instances where short-term financing can be just what you need. So we’re not only focused on seasonal activities. 

What is a seasonal campaign loan and what is it used for?

For our purposes, a campaign is a (relatively) short business cycle where either your expenses increase sharply, or the amount of cash coming in decreases. This might be because you’re investing heavily to take advantage of increased demand (examples shortly), or during a quiet period or off season.

A seasonal loan helps you cover working capital requirements for the specific period in question. This is separate from your existing financing plan. 

What other options exist?

A campaign loan is one of the possible solutions for a company's short-term cash flow. 

Others include:

• Classic bank overdraft, a credit facility authorised by the financial institution
• Urgent overdraft facilities, a one-off bank overdraft with no long-term authorisation and a prohibitive financial cost
• Invoice discounting by a bank or third party
• Factoring, the transfer of invoices to an authorised organisation in exchange for funds
• Short-term cash credit, or campaign loans like the ones we’re examining here

#2 - Which companies use short-term campaign loans?

Campaign loans are used in a variety of situations, even within the same company. 

Companies with regular seasonal activity

Many sectors have regular seasonal peaks. This is the case for tourism, particularly in seaside areas and ski resorts. The toy sector is also particularly exposed to the seasons (most notably the holidays).

Agriculture is probably the most obvious example. Agricultural businesses need to invest heavily many months in advance of the harvest, when they hope to recruit these costs.

• Fruits and vegetables have a clear season and require strategic investments at the right times.
• Livestock production, such as cattle, can take even longer to pay off. Seasonal credit here can last up to a year.

Businesses launching commercial campaigns

There are non-seasonal activities which require extra cash. Time-sensitive, one-off commercial campaigns can take place any time. The goal is to accelerate sales through advertising or promotional campaigns, with a fixed investment and clear return. 

These campaigns also require an up-front investment, often long before seeing the benefits.

Special example the Paris Olympics

France hosts the Olympic Games in Summer 2024. This exceptional event is concentrated over just a few weeks, and promises to bring a huge influx of revenue to local businesses in this short time. 

But to capitalise, companies need to prepare and invest in advance. You may need extra staff, additional stock, and temporary additional facilities. The potential return is so enticing that you don’t want to get caught short when the moment comes.

Whether you're in hospitality, tourism, or virtually any local industry, you need the funds to prepare. A campaign loan may be the ideal financing solution. 

#3 - How do seasonal business loans work?

Let’s look now at how these applications are examined, the terms of the loans, interest rates, and the security generally required from borrowers.

What do you need to show?

The most important factor is obviously your ability to repay the loan on time. The lender assesses the risk of default before handing over any cash. It analyses your application, in particular the company's solvency and the cash flow plan you’ve drawn up. It also assesses the progress of the business, the operating cycle and your sales forecasts. 

All of which takes time to prepare. Make sure you plan well in advance if you want to use this type of finance.

The duration of a short-term loan to finance a campaign

A campaign loan is a short-term cash advance which you can draw from for expenses relating to a specific campaign. The duration of the loan therefore depends heavily on the campaign itself and when you expect to see a return. This will be a crucial part of negotiations with the lender.  

In all cases, the sums used must be repaid no later than the agreed repayment date, in one go or in several payments. The maximum duration for most campaign loans is one year.

The cost of short-term financing

Campaign loans generally involve two types of cost:

• Interest calculated on the basis of the number of days the advance is used, at the rate agreed in the contract.
• Administrative charges levied by the lender to cover the cost of the application and arranging the loan.

Guarantees and insurance required by the lender

To cover its risk, a traditional bank often requires security or insurance when setting up a campaign loan. A classic example is using the stock purchased with the loan as security for the loan itself.

In some cases, you may use other stock or assets not involved in this particular campaign. This then prevents you from selling these assets until the debt is repaid. If there is a problem repaying the advance, the bank can be paid out of the sale of the stock covered by the warrant.

Because there is a range of potential options and best practices, it’s important to carefully negotiate the terms of your agreement.

#4 - The advantages and disadvantages of seasonal loans compared with traditional financing options

In addition to working capital loans, there are 4 other short-term financing options available to businesses. So how do you choose? What are the advantages and disadvantages of this short-term loan and the other possible solutions?

Advantages of short-term working capital financing

Used for seasonal or campaign loans, working capital financing is very flexible. You can decide whether to use all or only part of the amount granted. You can also repay the loan before the due date, or even in several instalments. 

And most importantly, you know exactly how you’ll pay and can choose terms that suit your business. As we’ll see with the following options, this isn’t always the case. 

Disadvantages of urgent campaign financing granted by banks

There’s also a more predatory form of urgent, short-term credit. Sometimes offered by banks or unregulated third parties, these loans involve much higher costs and painful penalties if the terms aren’t precisely met. Even if everything can be negotiated, these management costs can really sting. 

What's more, credit institutions often limit this type of loan to classic seasonal situations. They may not be available for one-off campaigns or for businesses just trying to optimise working capital. 

Finally, the amount of due diligence required by some banks can mean that these loans take too long to access. And when time is of the essence, this defeats the purpose. 

Disadvantages of traditional factoring

With traditional factoring, you transfer your receivables (unpaid customer invoices) to the factor in return for an immediate cash advance. You get money now which you would otherwise get later, in exchange for a fee. 

But setting up these financing operations takes time. And worse, it’s not particularly flexible. You often need to transfer all of your receivables, not just a sample. If you’re only looking for limited funding, this can be too cumbersome. 

And the cost of factoring can be prohibitive in this situation. Both in the added fees and interest, and also in the lost profits from handing over more receivables than you’d like. 

#5 - How Defacto serves SMBs with short-term financing

Seasonal loans are ideally fast to access and flexible, tailored to your specific campaign or needs. This is precisely the type of financing we offer at Defacto.

Fast financing for small businesses

Our short-term financing is designed to provide immediate cash for your commercial campaigns and seasonal spikes. Starting with a lightning-quick application process. Our algorithms instantly assess your documents and ensure you’re a good fit. 

And there's no need to submit a full loan application with a detailed cash flow plan. We connect to your management tools and bank accounts to verify your cash flow — with your authorisation, of course. The decision is made instantly, and we can begin transferring funding.

Finance any campaign

Do you need to pay exceptional supplier expenses as part of your sales campaigns? Are you anticipating sales growth by buying more stock, but don't have the necessary cash? Defacto can finance these campaign-related cash outflows in just a few clicks.

And modern finance technology helps us track the growth of your business and therefore anticipate your cash flow needs.

Only pay for the money you use

Campaign finance is calculated on the exact number of days the cash advance is used. You pay no hidden charges or management fees. We apply a transparent rate of 0.05% per day.

Get financing that combines flexibility and speed

Whatever the campaign you want to finance in the short term — for a seasonal peak or a temporary event — shorter-term working capital loans are your best bet. 

Defacto is the first B2B lending platform to be approved by French regulators. You benefit from the speed and flexibility of a start-up, with the support and experience of an accredited institution.