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Key takeaways

  • There are various types of small business loans available for financing holiday needs, such as lines of credit, term loans, merchant cash advances and invoice financing
  • Small business financing can be used for most holiday-related expenses, including inventory, staff, advertising and equipment upgrades
  • Planning ahead and understanding your business's needs and sales trends can help you determine the right type and amount of financing to apply for

The holiday season can be a busy and profitable time for businesses, but the increased customer demand can pose challenges. Small businesses may want to consider business financing to help cover costs for inventory, staffing, new equipment and other expenses that may arise during the holiday shopping season.

To prepare, you can identify costs and purchases you might need to help your business accommodate more customers and increased sales. Then, you can apply for the type of financing that best serves that need. Here’s how to finance your small business for the holidays and make the most of this busy season.

Ways to finance a business during the holidays

Several options for business financing can help you navigate the holiday rush. Each loan type offers unique benefits that serve different funding purposes.

Business line of credit

A business line of credit is a type of business loan that approves you for a set loan amount, but you don’t have to use it all at once. You can withdraw funds as needed and use them for operational costs like purchasing inventory or covering increased production. This type of loan is often revolving, meaning you can borrow up to the credit limit and reuse the credit line as you pay down your balance.

Business credit cards

Business credit cards offer instant access to capital, and the card can be used for nearly any business expense. Some cards offer cash back and points for using the card, perks that you can redeem for business travel or expenses. Sometimes, a credit card issuer will even offer an introductory 0 percent APR for the first 12 months, allowing you to borrow money interest-free for that period. That said, if you make late payments on your card during the introductory period, you may lose the 0 percent APR and potentially take a hit on your credit score.

Business credit cards can also act as a short-term, interest-free loan option if you pay your balance in full by the monthly payment due date. When you pay in full each month, the credit card company won’t charge interest on the balance.

Term loans

Term loans allow borrowers to access money they must repay over a set period called a repayment term. They are ideal for financing needs in which you know the amount and funding purpose you need, such as for buying equipment. You can get both short- and long-term loans, depending on the purpose of the financing, what you qualify for and the monthly payment you can afford.

Short-term loans often go up to two years, while long-term loans can have repayment terms of three to 25 years. A short-term loan may work well if you’d prefer to get a fast business loan that you can pay off quickly. However, short-term loans can come with higher interest rates or lower loan amounts as the tradeoff for getting a shorter term. By contrast, long-term loans work well when you need to lower the monthly payments.

Merchant cash advance

A merchant cash advance (MCA) allows you to receive an advance based on your business’s credit or debit card sales. This is an excellent option for businesses with lower credit scores or low revenue since MCAs tend to have high approval rates. But they can charge high fees or interest rates of 50 percent or more, so if you’re in a tight financial spot and can’t secure a more affordable loan, consider an MCA.

Invoice financing or factoring

Invoice financing is a type of small business financing that provides a cash advance on outstanding customer invoices, typically up to 90 percent. It helps you unlock funds tied up in unpaid invoices to cover cash flow gaps. Invoice financing works well for business owners with bad credit because the financing company weighs your clients’ credit history more heavily than your business’s credit.

Similarly, invoice factoring lets you sell your company’s outstanding invoices to a factoring company. By selling your invoices, you’re essentially getting an advance on your earnings rather than waiting for customer payments. For both invoice financing and invoice factoring, the financing company gets paid a fee once the invoice settles.

What to use holiday business financing for

The holidays can bring a variety of challenges that small business financing can help with, such as keeping enough inventory so you don’t run out during a peak in sales. Here are some common uses for holiday business financing that your small business may want to prep for:


The holiday rush can often bring more customers to your business than other days throughout the year. Financing can help you purchase the necessary inventory to meet the increased customer demand.

You may want to review your past holiday seasons’ sales and inventory data to accurately forecast how much inventory you need for the upcoming season. You may also want to communicate with your suppliers to understand their ability to supply more inventory. Knowing timelines for receiving new inventory orders can help you gauge when to order more.


The holiday season may require extra help to manage the influx of customers. You can use your business financing to hire seasonal workers to keep up with product orders or sales, to enhance the customer experience, such as door greeters or help run a holiday event.

Advertising or marketing

To attract new customers with discounts and promotions, you may need to run advertising or marketing campaigns to get the word out. You may choose to advertise through direct mail, coupons, social media or search engine advertising. Yet to advertise, you’ll need to pay the platform or marketing company ahead of time before you can generate sales.

For example, if you decide to run ads on Google, you’ll need to pay Google for those ads — or pay a marketing agency to run ads for you. The same goes for social media, with you paying the social media platform to run ads unless you simply post on social media without creating an official advertisement.

You can research ahead of time to understand the costs before you advertise. Your goal is to use advertising to increase sales and generate a profit. So avoid paying for advertising when you think you would have to operate at a loss.

Upgrade equipment

To prepare for the holiday season, you may need to upgrade your equipment due to wear and tear or to help your business be more productive. In this case, you could apply for an equipment loan, which uses the purchased equipment as collateral. This secured loan is less risky for the lender, so the lender may offer you a lower interest rate than you’d get with other types of business loans.

Working capital

Expenses can arise at any time, especially during a seasonal rush. Working capital refers to the funds your business uses for day-to-day operations. When you get a working capital loan, you can use the funds for expenses like covering repairs or buying more inventory to keep your business running smoothly.

For example, business equipment could break down with extra use, or you might need a rushed inventory order to avoid gaps in your stock of products. Getting a working capital loan will help keep your business moving during the ebbs and flows of sales and avoid unhappy customers.

How to manage holiday financing and inventory

To effectively manage your holiday business loan, you want to:

1. Estimate holiday business expenses. To effectively manage the holiday sales and financing, you want to first plan for upcoming holiday expenses like additional staff and inventory. You may want to write a plan — much like a business plan — to help build your strategy for the holidays. Remember to account for customer shopping trends and forecast the increased sales you may receive.

2. Plan your holiday promotions to manage inventory. You’ll need to decide on the promotions you want to offer for the holidays and prepare your business accordingly. For example, if you’re discounting a popular item, you may want to make or buy more of that product to accommodate the potential increase in sales.

3. Research how much business financing you qualify for. You can research lenders offering loans to businesses with your credit history, revenue and time in business. Many lenders also allow you to prequalify to see how much you may qualify for without a hard credit check.

4. Add loan payments to your budget. Adding this expense will ensure that you prioritize repayment. You can set up automatic payments from your business bank account so you never miss a payment and keep your loan in good standing.

Bankrate insight
To estimate how much financing you can handle, you can use a business loan calculator to calculate the monthly payment for the amount of funding you may request. Then, you can see whether that payment fits in your budget.

Bottom line

Financing is a crucial tool for small businesses to navigate the holiday rush and meet customer demands. Businesses have various small business financing options to choose from that match their purpose for funding. Those options include a business line of credit, credit cards, term loans, merchant cash advances or invoice financing. By understanding your business’s sales increases and needs for the holidays, you can adequately apply for the right amount and type of financing ahead of time.

Frequently asked questions

  • Discounts, giveaways, free perks and holiday events are common ways to draw customers to your business during holidays like Small Business Saturday. You can research the promotions that your competitors are doing and brainstorm ways to make your business stand out. You could use social media to create posts and interact with followers, helping you build a dedicated customer base.
  • Some small business challenges that you might face are a boost in sales, keeping your shelves stocked and hiring and managing seasonal employees. If you make a plan for dealing with any challenges, you’ll be able to keep your business flowing during the holiday season. You can also refer to past sales data to help you buy more inventory or hire more staff.
  • The business loans with the highest chances of approval are merchant cash advances, equipment loans and commercial real estate loans, according to the 2023 Report on Employer Firms by the Federal Reserve Banks. SBA loans and lines of credit are also common forms of financing with a decent chance of getting approved.