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The short answer
Use a line of credit to bridge seasonal gaps: you draw only what you need, pay interest only on the outstanding balance, and reuse the line next season. Use a term loan for one-time, long-lived purchases — equipment, a buildout, a vehicle — that you'll pay off over years. Financing a recurring seasonal dip with a term loan means carrying debt payments year-round for money you only need for a few months, plus origination fees on every new loan each season.
How each one works
Line of credit. A revolving facility with a limit — say $100,000. You draw $60,000 in the slow months, pay interest only on the $60,000 while it's out, repay it when seasonal revenue lands, and the full $100,000 is available again next year. Watch for annual fees, per-draw fees, inactivity fees, and minimum-draw requirements. Many lines require an annual "clean-down" — a 30-day stretch at zero balance proving the line is seasonal, not permanent working capital.
Term loan. A lump sum — $60,000 deposited once — repaid in fixed monthly installments of principal and interest over a set term (often 3–5 years). You pay interest on the full balance from day one whether you've spent it or not, and once it's repaid, it's gone: next season means a new application. Origination fees of 1–3% are common, and some notes carry prepayment penalties.
The seasonal math: $60,000 for 5 months
Illustrative, as of October 2026. A landscaper needs $60,000 to cover payroll and materials from March through July, repaid when contracts pay out in August.
| Line of credit (illustrative) | Term loan (illustrative) | |
|---|---|---|
| Structure | Draw $60,000 as needed | $60,000 lump sum day one |
| Rate | 10% APR on drawn balance | 9% APR, 36-month term |
| Interest for the 5-month season | ~$2,500 | ~$2,000 (then payments continue) |
| Monthly obligation | Interest-only ~$500 while drawn | ~$1,908 every month for 3 years |
| Fees | Annual fee + possible draw/inactivity fees | Origination 1–3% (~$600–$1,800) |
| Next season | Repay and redraw — no new application | New loan, new fees, new underwriting |
The term loan's 5-month interest looks slightly cheaper in isolation — but the origination fee wipes out the difference, and you're locked into $1,908/month through the next two off-seasons whether you need the money or not. The line costs interest only while the gap is open, then goes quiet.
When a term loan wins anyway
- The need is permanent, not seasonal. Buying the mower fleet you'll use for five years is a term-loan purchase — matching a long-lived asset to a multi-year amortization.
- You need payment certainty. Fixed installments are easier to budget than a variable draw balance, especially if rates are rising.
- Your line is too small. If the seasonal gap exceeds your approved limit, a term loan may be the only structure that covers it.
Don't overlook the SBA's seasonal option
The SBA's Seasonal CAPLine — part of the 7(a) program — is built for exactly this: financing seasonal increases in receivables and inventory (and in some cases the associated labor costs). It can be revolving or non-revolving, carries the 7(a) guarantee, and the rate is capped under SBA maximums. If your bank does SBA lending, ask about it before you settle for a conventional line. If a conventional line is the better fit, shop lenders here →.
Planning your seasonal draw
- Borrow before the season, not during it. Apply 6–8 weeks before the slow months — underwriting doesn't pause for your cash crunch.
- Draw in tranches. Pull funds as the gap materializes, not the full limit on day one — every undrawn dollar accrues no interest.
- Set the repayment trigger in advance. Tie repayment to a specific event — "when the August receivables land" — not to a vague intention.
- Respect the clean-down. If your agreement requires a zero-balance period, calendar it; violating it can trigger a default or non-renewal.
Common mistakes
- Using a term loan for a recurring seasonal gap. Twelve months of debt service for five months of need — and new origination fees every year.
- Maxing the line on day one. Draw as needed; interest accrues on the balance outstanding, not the limit.
- Treating the line as revenue. It's bridge financing. The season's cash must repay it in full, or next year's line starts underwater.
- Ignoring the fee stack. Annual fees, draw fees, and inactivity fees can add a point or more to the effective cost — include them in the comparison.
- Missing the renewal date. Lines typically renew annually with fresh underwriting; a bad year can mean a smaller line exactly when you need it most.
Methodology and limitations
As of October 2026. Dollar figures are illustrative, computed from the stated assumptions (10% illustrative line APR, 9% illustrative 36-month term rate), rounded, and exclude fees. Actual pricing depends on credit, revenue history, collateral, and market conditions. The SBA Seasonal CAPLine description reflects sba.gov program materials; confirm current terms and availability with a participating lender. This guide compares financing structures, not tax treatment.
Reviewed by the LoanMate.ai editorial team.
Primary sources
- U.S. Small Business Administration (SBA.gov): CAPLines program, including Seasonal CAPLine
- Federal Reserve: interest rate and small business lending data
- Federal Deposit Insurance Corporation (FDIC): small business lending guidance
Next action
Model your seasonal draw-and-repay schedule →, ask your bank about the SBA Seasonal CAPLine, and shop business lines of credit here → to compare limits, rates, and fees.