Difficulties with Seasonal Loans

by : Gregg Hall

Seasonal commercial loans can be a common source of funding for a business. However these types of loan are sometimes filled with risks and riddled with problems. If the loans are not used for the intended reason or paid when agreed upon the loans then become a liability for the lender.

Whenever possible the lender should always check to insure the trade was fulfilled as agreed. Sometimes the lender may be able to catch potential problems before they become real troubles. Companies are the same as an individual in that they are responsible for fulfilling the terms of all loan agreements and promissory notes.

If the end of the term has come and went without repayment on the loan the bank often will check to find out whether the trade was fully paid or not. The problem will only be further when the trade is not paid as well thus dropping the company into a danger zone making repayment even more difficult than previously.

Sometime incidents can occur which are beyond the companies control causing them to be unable to complete the repayment. In that case there are remedies available between the lender and the business but generally only when the lender is contacted at first sign of difficulty. Waiting too long may cause the problem to grow worse and cause the lender to lose faith in the borrower. It is always the best idea to keep the lender up to date on any changes, which may affect repayment of the loan so that they may look for alternative solutions.

When seasonal commercial loans are structured in a way that cannot be completely cleaned up with sale of trade the company often finds difficulty repaying the loan. This can happen when the loan is made for more than the amount of trade therefore making it difficult for the business to cover the loan with seasonal trade. When there is also lack of collateral or equity in day to day operations the business may find repayment nearly impossible. This can cause a spiral of the companies problems financially due to overextending their assets. If there is too much loan for the amount of product it is clearly a bad idea for the lender to disperse the loan without additional collateral.

Whenever possible the lender should try and be involved or at least aware of the marketing plan for the business. This will help the lender to spot common problems before they may otherwise become apparent due to lending experience and common mistakes. When the lender and the business work together for all aspects of the lending process including sharing marketing plans and fiscal reports both parties will be more likely to insure success of repayment of the seasonal commercial loan.