Lending Business Opportunities During Christmas

The Holiday Season is here! The bad news though is that most lenders may not meet their business targets for this year thanks to low sales and high loan default rates. However, there remains the hope of redeeming this battered year through the provision of various short-term financial products and solutions especially to retail traders during this year’s Christmas holiday season.

The past holiday seasons have been a great time, especially for merchandising businesses, a time that sales skyrocket thanks to the shopping craze that characterize the festive season. This year is likely to be the same despite the Covid-19 challenge with the possibility of some shoppers preferring online retailers.

Large retailers are already generating ads that tactfully avoid the ‘C’ word while raising the spirits of their target audience. Like in the previous years, lenders consider this season as a time to offer stop-gap financial solutions especially to merchants who need to increase inventory in anticipation of the spending spree.

Below are types of short-term loans that financial services companies could exploit to try to recover the time lost during the year.

· Revolving Credit Facility

Revolving Credit is a line of credit that is arranged between a lender and a business. Its key feature is an established maximum amount, and the business can access the funds at any time when needed. The facility is also commonly known as an operating line, bank line, or simply a revolver.

It’s one of the most convenient credit facilities for retailers in this season who may need quick cash to buy additional inventory and hire more employees in case demand rises unexpectedly. The revolving credit interest is only applicable to the amount withdrawn. The borrower therefore only utilizes what they need.

Many businesses love the above flexibility, especially in the upcoming holidays.

· Merchant Cash Advance (MCA)

Merchant Cash Advance is not a loan in but funds that the lender avails to the borrower who then repays at a percentage of their daily earnings from debit card and credit card sales. MCA is preferred by small business owners who collect payments through cash, checks, or credit cards, have a high volume of sales, and need funding quickly.

Merchant cash advance default rates are generally low because the repayment is recovered from daily sales through various direct debit arrangements such as direct deduction from the Automated Clearing House (ACH). The application and processing of MCAs are simple and fast hence availing working capital that may be needed urgently especially in this season.

· Invoice Financing

This is an asset-based finance facility whereby businesses sell their account receivables to a third party for a percentage of their total value. With this product, therefore, a business could finance a large invoice to ease its cash flow while leaving the smaller receivables unaffected.

Invoice finance lenders could come in handy for businesses during the festive season because of the ability to release cash from one invoice as and when needed. In invoice financing, the customer retains full control of collections from their customers.

Invoice Factoring Loan

While Invoice Factoring is similar to Invoice Financing, the difference is that a factoring company purchases unpaid invoices at a discount and takes over collections. Invoice factoring loan has become a popular form of alternative business lending in a way that releases the much-needed cash from the debt book.

This option of funding is very convenient for businesses whose customers may have excellent credit but taking too long to pay.

Businesses with imperfect credit or in urgent need of cash would prefer invoice factoring to traditional finance from the high street banks.

· Business Credit Cards

Similar to revolving credit facilities, a business credit card may be a useful business funding contingency plan. Many businesses also prefer them because they can make expense tracking and periodic reconciliation easier.

Whereas all business credit cards may offer similar services, that of making the much-needed credit in this season available, the terms, conditions, and benefits may be different. Therefore, lenders would have to offer the facility with added benefits that meet their target client's needs.

· Unsecured Business Funding

This is a great business funding option for a business that doesn’t own many assets and may be unwilling or unable to offer security. It’s also an option for businesses that require quick funding to seize a business opportunity and repay within a short time.

Loan default risk may be mitigated through the pledge of personal assets or a personal guarantee.

· Christmas Loan

These are loans to help with Christmas demands and financial needs. Just like any other type of personal loan, they may be secured or unsecured. This kind of borrowing is largely influenced by consumer behavior during the holiday season and is therefore very common.

These loans may be in form of personal loans meant for one-time expenses or point of sale financing which is designed for smaller purchases. Some borrowers may consider it as a payday loan which they would be willing to repay with their next salary.

· In Conclusion

There are other types of loans that may be crafted to meet the unique needs of clients during the festive season. This is all dependent on the creativity of the lender especially non-bank financial companies that do not fall within the regulation of the Federal Reserve System.