Could A Seasonal Business Loan Help Your Restaurant During The Slow Season?

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Learn all about seasonal business loans, why restaurants use them, the benefits, and some of the most popular kinds of seasonal business loans.

All restaurants experience seasonality.

To compensate, restaurateurs often resort to shortening business hours, staying closed during weekdays, or shutting their doors altogether for the duration of their slow season in order to slash operational overhead and save money for when business picks back up.

If this sounds like your restaurant, there is another option worth pursuing if you've found yourself in a seasonal slump but don't want to change up your operating hours: a seasonal business loan.

Whether you run a gastropub in a ski resort town that clears out by April, a (mostly) outdoor cocktail bar that sees tumbleweeds by November 1st, or an upscale eatery in a college town that wishes it were parents weekend every weekend, a seasonal business loan can help you cover your operational costs until you shake off the seasonal slump.

Let’s go over the basics of seasonal financing and why it might make sense for your restaurant.

Why do restaurants use seasonal business loans?

You knew when you opened your restaurant that the busy times would have to buoy you through the slow ones. All kinds of restaurants and businesses, not just seasonal ones, see peaks and valleys in their revenue streams throughout the year.

But, even when businesses cut back hours in slow seasons or temporarily close your doors, there are often still operational costs that need tending to. In order to cover gaps and keep the lights on, businesses often turn to financing to smooth out cash flow.

In reduced hours situations, you will still need to:

  • pay staff
  • buy inventory,
  • service your equipment, and,
  • pay other overhead costs and taxes.

Restaurants who 'close for the season' will still need to

  • pay rent,
  • pay taxes,
  • pay or renew permits and licenses,
  • pay insurance, and,
  • keep gas, sewage, and electric running (depending on your city's laws)

And, regardless of your operational hours, you will also need to pre-plan and set yourself up with funds to buy inventory so you’re ready to go once your guests make their triumphant return.

Common uses for seasonal financing

You’ve likely identified areas of your business that, without the benefit of your high season's consistent revenue stream, put a dent in your bottom line. The most common seasonality related reasons restaurants take out financing include:

  • Paying your staff. Even if you operate on a limited schedule in slow seasons, you’ll need to hire, train, and pay your staff just the same. Hiring for the restaurant business is tough enough as it is—turnover is high and attrition is likely—without worrying that you won’t be able to pay your staff due to insufficient cash flow.
  • Covering your overhead. Paying rent and/or mortgage payments on your space, covering your insurance costs and utilities – these are costs that you will always need to address regardless of the season.
  • Upgrading or repairing your equipment. During high season, your equipment will probably run at capacity at all times and the thought of sidelining a piece of equipment for repairs or replacement is both ghastly and unthinkable. Your restaurant's slow season is the perfecttime to invest in new equipment – like a new water heater or gas hood – or repair/refurbish what you have, like your walk-in freezer.
  • Stocking up on inventory. On one hand, your restaurant's slow season is a great time to stock up on needed inventory – from cutlery to non-perishable food items, yet, on the other, a lack of positive cash flow can make purchases of all shapes and sizes pretty painful.

The best seasonal financing options for restaurants

Restaurant financing can take many forms, and depending on factors like your time in business and credit history – amongst others – some options may be better suited for you than others.

A restaurant with an excellent credit history and a long history in business, for example, is more likely to be approved for a loan with low interest rates and long repayment terms, whereas a newer restaurant without an established business credit report may need to build up their credit through credit cards before they can be considered for longer-term financing.

Here are the four options that seasonal restaurants should consider in their search for affordable, responsible funding:

1. Business credit cards

A business credit card is helpful for any business owner – not just a restaurateur dealing with seasonality – to have in their pocket. They are a great way to help keep your business and personal expenses separate and many business credit cards offer perks and rewards that can help businesses boost the bottom line as well.

Most importantly, in this context, credit cards act as a form of quick capital, especially for smaller expenses such as buying inventory. Additionally, you may be able to secure a card with a 0% introductory APR—which means you won’t pay interest on your purchases (assuming you make at least your minimum payments) throughout the life of the offer, typically 12-18 months. That makes your card a kind of free short-term financing.

For new businesses, credit cards are much easier to obtain than other forms of financing on this list (a good personal credit score is often enough to get you approved), and thus is a good starting point for building business credit.

2. Business lines of credit

A line of credit for your business is similar to a credit card, with a few major exceptions.

A line of credit is another revolving form of credit—you can draw on your line like you would a credit card and pay each draw back on its own amortized schedule; you don’t pay for your line when you aren’t using it.

While you don’t rack up rewards points on a line of credit like you do a card, you can withdraw cash to use however you’d like. That makes an LOC perfect for covering all kinds of expenses, from payroll to overhead costs.

Because of their flexibility, and the fact that business owners can always keep a line of credit on hand for use in cash-crunch emergencies (without paying to maintain access), LOCs can have higher interest rates and fees than short-term loans. Keep an LOC as a powerful occasional tool, rather than your “one-size-fits-all” financing solution.

3. Short-term loans

Term loans are the most traditional kind of financing you can think of: You take out a certain amount of money from a lender, and you pay them back over weeks or months with interest. A short-term loan is typically repaid within 3-18 months.

If you have a specific project in mind for your financing—a renovation, or an excellent deal on inventory—that you know you can pay back quickly once busy season comes around, a short-term loan may be a good choice for you over a line of credit (higher interest rates) or a credit card (lower spending limits).

Short-term loans do typically have higher interest rates and quicker repayment terms than traditional long-term loans from traditional lenders, or SBA loans, but in the long run, a long-term loan means you pay more in total interest than a short-term loan. Online lenders can sometimes approve short-term loans in as little as one business day.

4. Equipment financing

If you want to upgrade or update an expensive piece of equipment or machinery, equipment financing is an excellent option, especially if you are a newer business or don't quite have the credit scores for an affordable short-term loan.

Equipment financing is simple: you get a quote for the equipment you want to buy—a new deep fryer or a bigger fridge, perhaps—and the lender approves you for the amount you need to make the purchase. Sometimes, the sellers of the equipment themselves act as lenders.

These kinds of loans are “self-secured,” meaning the equipment is the collateral. If you don’t make your payments, you may lose the equipment.

Whether your goal is to open a new location, invest in new equipment, or just manage cash flow over the next few months, you're going to need a reliable source of funding to make your dreams a reality. Toast Capital provides eligible Toast customers with access to loans from $5K to $300K that can be used for any restaurant need. Toast Capital Loans have one fixed cost with automated repayment that flexes with sales* – with no compounding interest and no personal guarantees. Once you’ve been approved and signed your Toast Capital Loan agreement, you can expect funds to be sent to your bank account in as soon as one business day**.

You've gotta spend money to make money

At the end of the day, you should only take out financing if it adds value to your business and you’ll be able to pay your funding back on schedule. For seasonal businesses, there may be immense value in using funding to stay open during slow months, or using the downtime to make major renovations or upgrades.

Rather than paying to keep your business running in other, less profitable ways—paying to constantly hire staff as those you can’t afford to pay leave for good, or buying a replacement grill in the middle of busy season—see whether slow season financing is a more responsible choice for you.

Toast Capital Loans are issued by WebBank. Loans are subject to credit approval and may not be available to borrowers in certain jurisdictions. WebBank reserves the right to change or discontinue this program without notice.

*Toast Capital Loans offer different target repayment terms ranging from 90 days to 360 days, depending on eligibility. The maximum repayment term is 60 days following the end of the target repayment term. Any outstanding balance due at the end of the maximum term will be collected automatically via ACH.

**Funds are typically disbursed within 1-2 business days after signing your credit agreement.

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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.