Bridge financing can be an excellent option for a business looking for a quick access to working capital, and Real Estate or equipment financing. These funds can also be used as a transitional bridge, so to speak, to a permanent SBA or conventional financing.
If you are considering this type of loan for your business, you’ll need to understand the details of this type of financing, including the pros and cons before starting the application process.
There are a number of secured and unsecured loan options available. However, a bridge loan secured by tangible assets of your business will offer better overall terms and lower interest rates. The terms of a bridge will vary from 3 months to 36 months, with an interest only monthly payment and a balloon payment at loan maturity.
The assets to be used as collateral can include the following:
- Commercial owner occupied Real Estate
- Commercial or residential investment property
- Accounts Receivables
- Inventory and/or Equipment
You can get a bridge loan from a number of alternative lenders, hard money lenders and less commonly from your bank or credit union. Alternatively, you can engage a business advisor or a broker to help you identify a lender and assist with the application process.
A bridge loan can seem like a good option and a life saver in a tough situation. However, before making a decision, you should consider the pros and cons:
Pros
- The funds can be obtained in one to three weeks.
- The application process is less involved than a conventional or an SBA 7a loan
- Interest only monthly payments
- Short prepayment periods or no prepayment penalties
Cons
- High interest rates ranging from 10% to 15%
- High closing costs, including lender and broker fees
- Personal guarantees will be required
- All assets of the business may be encumbered
- Additional collateral, including liens against primary residence may be required
In conclusion
Bridge loans provide your business with a way to quickly access capital to cover expenses during a period of low cash flow. By using your existing assets as collateral, your business can secure a loan that helps bridge the gap between your current financial situation and low interest conventional or SBA financing. While bridge loans can be risky, they can give you business the flexibility and working capital to overcome a short-term financial challenge.
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Our process is simple. During your free, no-obligation consultation we will work to understand your unique circumstances. Once we have determined that we can help, we’ll design a strategy that will significantly reduce your monthly payment and increase your monthly cash flow.
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