Bridging Seasonal Gaps: Using Asset-Based Lending to Manage Seasonality

Seasonality often means holiday retail, outdoor equipment and tourism-related companies. Yet almost every type of business operates with some degree of seasonality. In agriculture, companies may need to gear up for spring and summer seasons in some parts of the country (or world), and in fall and winter in others. In transportation, dealers may need financing in the fall to purchase new vehicles. Other businesses will experience increases and decreases in demand throughout the year.

Companies dealing with seasonality face several common challenges, including:

• Inconsistent or unpredictable cash flow
• Inventory shortages or excesses
• Fluctuating needs for equipment
• Need for flexible staffing
• Maintaining customer satisfaction

Asset-based lending for seasonal financing

Businesses dealing with these challenges require strategic planning and forecasting – including the strategic use of financing programs. An asset-based lending (ABL) program can be an effective part of the financing mix.

ABL provides funding by leveraging existing assets as collateral. In this type of collateralized lending, the value of the assets pledged as collateral determines how much a business can borrow. Assets can include accounts receivables, inventory, equipment and, sometimes, real estate owned by the company. The most liquid assets are usually receivables and inventory.

6 ways ABL can help manage seasonal business

A wealth of businesses that need to manage seasonal fluctuations are maintaining strong asset bases. Borrowing against those assets – what they have now, versus future revenues – makes ABL an excellent way to manage seasonal business and, as a result, increase year-round results.

• Provide gap funding. The time between payments to suppliers (such as for inventory, equipment and operating expenses) and receipt of revenue from customers can be considerable. ABL can provide the funds to bridge the gap, allowing the company to continue following its strategic growth plans.

  This can be particularly helpful in industries such as manufacturing, where companies likely have excess inventory and accounts receivable to use as collateral for working capital needs. 

• Anticipate peak sale periods. Businesses can use ABL funds to purchase inventory in advance of seasonal needs. Maintaining a well-stocked inventory means they can be prepared for sales opportunities when they arise. Additional cash on hand may also open up the opportunity for volume discounts.  
• Assure smooth day-to-day expense management. During busy seasons, cash on hand will help smooth day-to-day operations, ease seasonal hiring and employment, and assure no interruptions in expense management.
• Avoid out-of-stock conditions. ABL can provide the cash to maintain a consistent supply of products and avoid out-of-stock positions. Businesses can maximize sales while increasing customer satisfaction.
• Respond to changing market demand. Seasonal businesses are exposed to customer needs and wants that can shift rapidly throughout a year, or even a season. ABL can help them respond quickly. In the retail industry, for instance, trends can arise unexpectedly during a year. In the transportation industry, a dealer may experience changing demand when a tax credit is cancelled – or implemented – for some vehicles but not others.

A game-changer in managing seasonality

For companies with substantial assets, ABL can be a game-changer in managing seasonality. Putting those assets to use as collateral can help bridge seasonal gaps, leading to improved cash flow, inventory management and customer satisfaction.

Mitsubishi HC Capital America is a non-captive, non-bank commercial finance company that provides customized solutions to help businesses create long-term sustainable growth. Our experts throughout North America are leaders in the use of ABL to manage seasonality. To learn more about how you can leverage ABL, contact us.