What is the difference between a seasonal facility and an overdraft?

An overdraft is usually a standing limit for everyday timing differences, often repayable on demand. A seasonal facility is set up for one identifiable build and release of cash each year, with dates, a purpose and an expectation that the balance will return to a low point. Some banks provide it as a temporary increase on an overdraft, so the product can look the same. The difference that matters is that the seasonal part is expected to come back.

How does a bank decide the size of a seasonal line?

It starts from monthly balances over several seasons, and from how much stock and how many debtors the business carries at its peak, net of supplier credit and of what the business funds itself. Growth is added when there is evidence for it, such as signed orders. Banks also look at last season's sell-through and at whether the balance cleared. Forecasts inform the discussion, but the record usually anchors the limit.

What happens if a seasonal facility is not repaid by the end of the season?

The consequence depends on the document, and may be a breach of a clean-down, an expired limit or simply a harder annual review. In practice a lender asks what is still in the balance. Stock that will sell next season, a slow customer and money spent on equipment are three different problems. The remaining balance may be moved to a term loan with a repayment schedule, and the next season's limit will be reconsidered.

Do farms use seasonal facilities?

Yes, and they are among the commonest examples. A farm pays for feed, fertiliser, wages and animal costs through the year while its income arrives in a pattern set by the crop, the stock sales or the milk season. Banks usually build the limit from a monthly farm budget. The test is the same as elsewhere: whether the balance returns to its expected low, and whether a higher peak reflects the season or losses being carried forward.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Seasonal Facility: a Worked Example

Lend for the season, then watch it come back.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 6 MIN READ

// THE SHORT ANSWER

A business that sells once a year has to pay for the stock months before the customers pay for it. A seasonal facility lends across that gap and is repaid as the goods are sold and the invoices collected, so its repayment source is the season itself. A lender wants two things from the record: how high the balance has really gone, and whether it has come all the way back. The first sets the limit. The second tells the lender whether the debt is still seasonal at all.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 11 — The Term Sheet War. A nine-year client brings a competitor's term sheet: 40 basis points inside your pricing, covenant-lite, and a Friday deadline. Your call first, then the senior banker's.

Read the file →

PART OF Corporate Lending and Credit Risk

// 01 — WHY THE SEASON GETS ITS OWN FACILITY

Some cash needs are large, predictable and short. A wholesaler buys in winter for a summer peak; a grower pays for inputs before the harvest; a tourism operator stocks up before the crowds. A limit set high enough for that peak would sit largely unused for the rest of the year, and a term loan would leave the business paying interest on money it no longer needs.

A separate seasonal limit, or a temporary uplift on a core line, fits the debt to the cycle. It is drawn while stock is built and debtors grow, then repaid by the conversion of those assets to cash. Lenders usually tie it to dates: an availability period, an expiry, and often a clean-down at the low point. Many such lines are reviewed each year and renewed only if the last season behaved.

// 02 — HOW THE PEAK IS BUILT UP

Peak need = stock at cost + debtors − suppliers' credit

Seasonal borrowing = peak need − what the business funds itself

Limit considered = proven peak + growth that has evidence behind it

The inputs come from monthly balances over more than one season, not from the balance sheet date, which in many seasonal businesses falls near the low point. The peak matters more than the average, and the months after it matter more than the peak, because repayments should follow the conversion of stock to sales and of sales to cash. Early in the cycle the bank is relying on stock as collateral, and later on receivables; where the line is governed by a borrowing base, the formula tracks that shift.

// 03 — THE EXAMPLE

A wholesaler of school stationery in the southern hemisphere, constructed for this page like every figure in it, imports from August and delivers to retailers ahead of the new school year. It has a limit of US$5.2m and asks for US$7.0m, on a forecast of 30% more sales. In US$m:

Balance at the peak, 31 December

Stock at cost 3.40

Debtors 3.10

Suppliers' credit (0.90)

Funded by the business itself (0.60)

Drawn at the peak 5.00

Season Peak Lowest, April to July

Two back 4.20 0.00

Last 4.60 0.10

Latest 5.00 0.60

The peaks rise steadily, which fits a growing business. The low is the warning. A retail chain moved from 30-day to 90-day terms during the year, and US$0.6m of debtors now stays outstanding through the months the line used to clear. No season will bring that back.

Request 7.00

Last proven peak 5.00

Growth backed by signed orders:

8% × (3.40 + 3.10 − 0.90) 0.45

Supported in this example 5.45

Core, moved to a term or core line 0.60

Seasonal, clearing to zero 4.85

Not yet evidenced 1.55

The forecast would imply peak need of US$7.28m (5.60 × 1.30), or US$6.68m after the business's own US$0.60m, so the request is not fanciful. It is simply ahead of its evidence: 8% is signed, and 22% is hoped for. In this example the bank funds what has been shown, moves the stuck US$0.6m somewhere honest, and agrees to look again when further orders are confirmed. The sizing method and the percentages are the example's and not a market norm.

// 04 — HOW IT DIFFERS FROM THE LINES BESIDE IT

A working capital facility is the wider family; a seasonal line is the member with a calendar. An overdraft or core revolver funds everyday timing differences and has no season to prove. A bridging loan is repaid by one named event, whereas a seasonal line is repaid by thousands of small ones. A clean-down is a test, and can be attached to any of these. Hardcore is what the test finds when a balance has stopped moving, and a term-out is the common remedy.

DEFINED IN ONE PARAGRAPH → · CLEAN-DOWN, WORKED → · TEMPORARY OR PERMANENT? →

// 05 — WHERE IT DECIDES A FILE

The first test is what the money was used for. A US supervisor's examination manual lists the familiar failures: advances that fund losses, buy fixed assets, or leave trade creditors unpaid when the bank is cleared. Each makes the line look repaid or busy while the cycle is doing something else. A bank paid out while suppliers wait has not seen a clean season, and those suppliers may be less willing to give credit next year.

The second is whether a rising low means growth or trouble. A business that is expanding may not be able to clear its line, because it is adding current assets. Unsold stock, slower customers and borrowed money spent on equipment look the same in the balance and call for different answers. A lender has to separate them, as the wholesaler's US$0.6m shows, and as Issue 06 tests on a retailer asking for a larger line after a Christmas that did not clear.

The third is timing inside the documents. A leverage covenant measured at the peak can read very differently from one measured at the low point, and a limit that expires just before collections finish forces a renewal at the worst moment. Agricultural lending has its own version, with a farm's seasonal limit set against its budget.

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Board of Governors of the Federal Reserve System (US), Commercial Bank Examination Manual, section 2080.1 Commercial and Industrial Loans (November 2020), pages 1–2 — Describes seasonal loans as repaid from converting the financed assets to cash and tied to that timing, reliance on stock and then receivables as collateral, an expanding business's difficulty in cleaning up, and the common failures listed in section 05.

// QUESTIONS PEOPLE ASK

What is the difference between a seasonal facility and an overdraft?: An overdraft is usually a standing limit for everyday timing differences, often repayable on demand. A seasonal facility is set up for one identifiable build and release of cash each year, with dates, a purpose and an expectation that the balance will return to a low point. Some banks provide it as a temporary increase on an overdraft, so the product can look the same. The difference that matters is that the seasonal part is expected to come back.
How does a bank decide the size of a seasonal line?: It starts from monthly balances over several seasons, and from how much stock and how many debtors the business carries at its peak, net of supplier credit and of what the business funds itself. Growth is added when there is evidence for it, such as signed orders. Banks also look at last season's sell-through and at whether the balance cleared. Forecasts inform the discussion, but the record usually anchors the limit.
What happens if a seasonal facility is not repaid by the end of the season?: The consequence depends on the document, and may be a breach of a clean-down, an expired limit or simply a harder annual review. In practice a lender asks what is still in the balance. Stock that will sell next season, a slow customer and money spent on equipment are three different problems. The remaining balance may be moved to a term loan with a repayment schedule, and the next season's limit will be reconsidered.
Do farms use seasonal facilities?: Yes, and they are among the commonest examples. A farm pays for feed, fertiliser, wages and animal costs through the year while its income arrives in a pattern set by the crop, the stock sales or the milk season. Banks usually build the limit from a monthly farm budget. The test is the same as elsewhere: whether the balance returns to its expected low, and whether a higher peak reflects the season or losses being carried forward.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Business relationship managerCarries a book of trading businesses — wins them, keeps them, and is the bank's voice when the answer is no.
Credit analystReads a borrower and writes the recommendation a decision-maker will act on.
Lending operations officerTurns an approval into a working facility — documentation, security, drawdown, and the register that says what the bank actually holds.

THE IN-TRAY · ONE MINUTE

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THE NUMBER · THE LOAN · CAPACITY

A property investor collects US$2.4m of rent a year and spends US$0.4m running the building. Interest and principal on its loan come to US$1.6m a year.

What is its debt service cover?

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THE READING ROOMIN ONE PARAGRAPHSeasonal facility What is a seasonal facility, and how does a bank size it?