A seasonal line of credit is built around a predictable annual cycle: borrowing rises as you buy inventory and pay crews ahead of the busy season, peaks just before collections arrive, and falls back as customers pay. Lenders fit the structure to that cycle with a higher commitment in the peak months that steps down afterward, seasonal advance rates on inventory, covenants tested at points that suit the cycle, and often an off-season clean-up. They underwrite the monthly cash cycle, so a month-by-month projection showing the peak and the payback is what gets the line sized correctly.
- Built for
- Businesses whose cash need peaks at the same time each year
- Commitment
- Higher in the build months, stepping down after the season
- Inventory
- Seasonal advance rates or sublimits that rise ahead of the peak
- Covenants
- Tested at dates and on definitions that suit the cycle
- Off-season
- Often a clean-up period at the natural low point
- The key document
- A month-by-month projection of borrowing, base and payback
Two kinds of seasonal business
Seasonality comes in two shapes, and lenders treat them differently because the collateral looks different at the peak.
Build-and-sell businesses buy inventory months ahead of their season: distributors of lawn and garden or holiday goods, apparel brands, e-commerce brands preparing for the fourth quarter, wholesalers stocking for a selling season. Their peak need arrives when the warehouse is full and receivables have not yet been created. The collateral at the peak is mostly inventory, which advances at up to 85% of net orderly liquidation value, roughly half of cost.
Work-in-season businesses sell services and spend on crews, fuel and materials as the work happens: landscapers, roofers, pool and snow contractors. Their peak need comes a few weeks into the season, when payroll has run for a while and invoices are out but not yet collected. The collateral at the peak is receivables, which asset-based lenders typically advance at 80% to 90% of eligible balances. Their harder months are the off-season, when overhead continues and there is little to borrow against.
The first kind needs help with inventory advance rates. The second needs help with timing and a plan for the off-season. A lender that treats them the same will size one of them wrong.
What lenders underwrite: the monthly cash cycle
An annual P&L hides everything that matters about a seasonal business. A lender reading only the year-end figures sees profit and a balance sheet at its most liquid, because many seasonal businesses end their fiscal year after the season. The lender needs to see the months in between, and it asks two questions of them: is the peak covered, by both the commitment and the collateral in that month, and does the balance come back down when the season says it should?
Here is a projection for a lawn and garden distributor that builds in winter, ships in spring and collects into summer. The commitment is 3,500 from February to June and 1,500 the rest of the year. Figures are in thousands, illustrative.
| Month | Line balance | Borrowing base | Commitment | Availability |
|---|---|---|---|---|
| January | 800 | 1,400 | 1,500 | 600 |
| February | 1,700 | 2,300 | 3,500 | 600 |
| March | 2,600 | 3,000 | 3,500 | 400 |
| April | 3,100 | 3,300 | 3,500 | 200 |
| May | 2,700 | 3,400 | 3,500 | 700 |
| June | 1,900 | 2,900 | 3,500 | 1,000 |
| July | 1,000 | 2,000 | 1,500 | 500 |
| August | 400 | 1,200 | 1,500 | 800 |
| September | 0 | 700 | 1,500 | 700 |
| October | 0 | 600 | 1,500 | 600 |
| November | 200 | 700 | 1,500 | 500 |
| December | 500 | 1,000 | 1,500 | 500 |
Three things stand out, and a lender will see all of them. The peak is April, with only 200 of availability: that is the month where a late shipment or a slow customer turns into a problem, and the month to size the cushion around. The July step-down is the second pinch point: the balance is still 1,900 at the end of June and must be below 1,500 when the commitment drops. On this projection collections get it there, but a slow June would leave the business over its commitment on the step-down date, so the date needs room in it. And the line is at zero in September and October, which is the natural place for a clean-up.
How lenders shape the line around the season
| Feature | How it works | What to watch |
|---|---|---|
| Seasonal commitment | A higher commitment for named months, stepping down on set dates | Step-down dates that match your actual payback, with room for a late season; the unused line fee on the higher amount |
| Seasonal inventory advances | A higher inventory advance rate or inventory sublimit during the build, falling back afterward | Whether the appraisal behind it reflects in-season stock or a year-end mix |
| Planned over-advance | An approved amount above the base during the build, stepped down to zero | Its price and step-down schedule; see over-advances |
| Dating terms on receivables | Eligibility rules that allow for early-order programs with extended customer terms | Whether dated invoices fall out when they pass 90 days from invoice, even though they are not yet due |
| Covenant timing | Tests on trailing twelve-month results and at dates that do not fall at the peak | Leverage measured on the peak revolver balance, which can breach in a good year |
| Off-season clean-up | The balance at zero or near zero for a run of days at the natural low | A window that matches your low point; see clean-up periods |
The dating point catches many distributors. If you offer retailers early-order terms, invoices raised in winter may not be due until late spring. A standard eligibility rule that excludes receivables more than 90 days past invoice would strike them out just as the line peaks. Lenders that understand the business write eligibility for dated invoices differently, measuring from the due date or allowing a longer period for a named program. The rule is covered in eligible vs ineligible receivables; for a seasonal business it belongs in the term sheet, not the fine print.
Covenant timing matters for a similar reason. A leverage covenant that divides quarter-end debt by trailing earnings will look worst at the quarter end nearest the peak, when the revolver is fullest, even in a record year. Some agreements measure the revolver at its average balance over the year, or test at fiscal year-end only. Which approach fits depends on your cycle, and the covenants on a line of credit sets out the tests themselves.
Sizing the peak, the cushion and the payback
The projection sets the peak, but the line should not be sized to the projection alone. Seasons run late, customers stretch, and a weather-driven business can lose weeks it cannot recover. The useful exercise is to run the same projection with sales arriving later and collections running slower, and see where the peak and the payback move. The commitment should cover the stressed peak, and the collateral in that month should support it.
The payback matters more to the lender than the peak. The risk it worries about most is carryover: a weak season leaves unsold inventory, the line does not clean up, and next year's build starts on top of this year's balance. Carryover inventory is older by the time it is counted again, so it advances less, just as the business needs more. Two weak seasons in a row can turn a well-structured seasonal line into a frozen one.
A seasonal line is judged on the month it peaks and the month it comes back down. Show the lender both, under a bad season as well as a normal one.
If the stressed projection shows a hard core that never pays back, the right answer is a term piece alongside the line, not a larger line. How lenders size a working capital line walks through separating the swing from the permanent need.
Bank line, asset-based line, or SBA
Banks offer seasonal lines sized on earnings, usually with a clean-up and a simple formula limiting borrowing to a share of receivables and inventory. They work well for established businesses whose seasons are consistent and whose earnings comfortably cover the debt. Their weakness is rigidity: the commitment is fixed, and a season that runs long collides with the clean-up.
Asset-based lines flex with the collateral month by month and have no clean-up, which suits businesses whose peak is large relative to their earnings. They cost more to run: monthly or weekly certificates, field exams, inventory appraisals and usually cash dominion. The trade is set out in asset-based vs cash-flow lines.
SBA's CAPLines program includes a Seasonal CAPLine, a 7(a) loan for the seasonal build-up with SBA's guaranty behind it; it has its own eligibility and structure, covered in SBA CAPLines.
Preparing the file, and where Transparent fits
A seasonal file persuades with history as much as projection. Lenders want to see that the cycle repeats: monthly sales, inventory, receivables and line balance for the last two or three years, next to the month-by-month projection for the coming year. Alongside that, Transparent's checklist for a line of credit or asset-based facility asks for:
- AR aging, by customer, with days outstanding, ideally at both the peak and the low point
- AP aging
- Balance sheet
- P&L / income statement
- Year-to-date P&L through last month-end (optional)
- Debt schedule and UCC position, showing existing liens
- Inventory report, if inventory is part of the borrowing base (optional)
- Bank statements (optional)
- Business tax returns, 2–3 years (optional)
Of the 1,800+ lenders in Transparent's book, 235 write asset-based loans and lines. Some are comfortable with seasonal commitments, dated receivables and in-season inventory advances; others are not, and the difference shows up only when the terms are compared side by side. Once documents are in, Transparent builds the full lender package, a financing model, lender presentation, blind teaser and underwriting memo, in a day. See the package for what it contains.
Common questions
- Do I pay an unused fee on the peak commitment all year?
- Not if the commitment itself steps down. With a seasonal commitment, the unused fee runs on the higher amount only in the months it applies. With a flat commitment sized to the peak, you pay on the unused portion all year, which is one reason to ask for a seasonal structure.
- What happens if my season runs late?
- The peak moves later and the payback with it, which can collide with a commitment step-down or a clean-up window. Build that possibility into the projection before signing, and ask for step-down dates with room in them. If a late season is already underway, tell the lender before a step-down date arrives.
- Can a seasonal business get an asset-based line instead of a bank line?
- Yes, and it often fits better when the peak is large relative to earnings. Availability follows the collateral each month and there is no clean-up, at the cost of heavier reporting, field exams and appraisals.
- Should my fiscal year-end fall after my season?
- Many seasonal businesses choose one that does, because the year-end balance sheet is then at its most liquid. Lenders know this and will ask for monthly figures regardless, so the choice helps presentation but does not replace the monthly projection.
- How do lenders treat inventory left over from last season?
- As older stock, which usually means a lower appraised value or ineligibility if it is slow-moving. Carryover is the main risk lenders look for in a seasonal file, so explain any carryover and how it will be sold.