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What is a Bridge Loan?
A bridge loan for small businesses is a short-term loan used to provide temporary financing. This type of loan is designed to help businesses meet their immediate financial needs while waiting for other funding sources.
For example, a small business may need to purchase new equipment or inventory but haven't received payment from a customer. A bridge loan can provide the necessary funds to make the purchase while they are waiting for payment.
How does a bridge loan work?
Application: You apply for a bridge loan and provide information about your business and its financial needs.
Approval: If the loan is approved, the lender will give you a lump sum of money.
Repayment: You will repay the loan once you receive payment from your customers or another funding source.
Bridge loans for small businesses can be expensive, so it's important to weigh the costs and benefits before deciding if it's the right financing solution for your business.
Loan Amounts
$25,000 – $5,000,000
Rates
Starting at 12%
Speed
24 - 48 Hours
How Can You Use a Bridge Loan?
Bridge loans are designed to help business owners fill in gaps in their cash flow. Often, a business will utilize a bridge loan while they secure a more permanent financing solution. A bridge loan can also be useful if an opportunity or urgent situation comes up where additional funds are needed immediately and there is no time to wait for revenue to catch up to expense needs. The flexible requirements for bridge loans allow businesses to utilize bridge lending for many different functions. The most common uses for the financing are outlined below:
Taking advantage of equipment or inventory discounts
It is common for business owners to encounter situations in which a big sale or offer for inventory or equipment comes up. Unfortunately, in a lot of cases, most business owners don’t have a lot of extra capital on hand. Bridge loans are one way that business owners fill gaps and grab business opportunities that they otherwise would not be able to afford.
Seasonality
Many businesses are seasonal. Sometimes, these businesses experience cash flow gaps, especially in the slow season. Thia makes it harder for them to overcome the hurdles like making payroll, paying rent, or reordering inventory to prepare for the busy season. While waiting for a more comprehensive loan, these businesses can apply for a bridge loan to cope with the business’ seasonal ups and downs.
Gap financing while permanent financing is being worked on
One of the most common reasons that business owners utilize bridge lending is that while longer-term financing and more permanent financing options are in the works, there’s an immediate cash injection to their business. Maybe there is investment funding on the way or the business owner is waiting for personal loan approval, some business owners find themselves in situations where they need working capital immediately and they can’t wait for the pending funds to come in. Applying for a bridge loan is one solution to fill in the gaps in cash flow until the other financing products work out. Once approved, those funds can be used to cover the repayment for the bridge loan.
Business growth and expansion
Another common use of bridge loans is for growth and expansion. Maybe the office next door suddenly became available or the perfect spot opened up that’s perfect for another location. Nevertheless, bridge financing can fund real estate acquisitions and construction. Working capital shortages shouldn’t have to limit a business’ ability to take advantage of growth opportunities. Business owners can work with lenders and apply for a bridge loan to get the cash for mortgage payments and more.
Hiring new employees
Bridge lending can also help businesses that need to hire new employees. The costs of additional employees increases your payroll needs, and it takes some time to adjust to the higher bi-weekly or monthly expenses. For businesses looking to add more members to their team but are worried about the increasing capital needs, a bridge loan might be the right financing option. These are just some of the many uses that business owners commonly use to bridge lending for. Generally, when a business owner applies for it, the business owner may also be working on getting another financing option approved. Because bridge loans often have a quicker application process, small business owners may use the funds temporarily as they wait for the other business financing option to get approved.
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What are The Benefits of a Bridge Loan?
Small business bridge loans provide flexibility for business owners. Some benefits of bridge lending for business owners include making capital readily available; a quick and easy application process; no application or upfront fees; flexible payment terms; affordable interest rates, and; limited documentation requirements. Most lenders can finish underwriting and close your bridge loan within 24-48 hours.
Available capital at your fingertips
Another benefit bridge lending for business owners is that it gives them the capital that they need when they need it, quickly. Most traditional lending options take time and the terms of repayment can go on for what can seem like forever while the business makes the payments. With bridge financing, businesses get the money sooner than with other lending options, and the entire process – from finding a lender, applying for the bridge loan, to receiving the funds – is often very fast. These days, most of it can be done online. Bridge lending provides a solution for business owners who need emergency funds or those who want to invest in commercial real estate, equipment, or other potentially profitable business opportunities.
Quick and easy application process
In general, the application process for bridge lending is quicker and easier compared to conventional loans. Most lenders can even complete the entire process online. With all of the different financial websites out there, finding information about different lenders that offer bridge financing has never been easier. With a quick search on the Internet, business owners should be able to find answers to all of their questions about bridge lending and browse options of different lenders and different types of bridge loan product options available.
No application or upfront fees
Another benefit to bridge lending for business owners is that most lenders do not charge application fees or other types of up-front fees for bridge lending. In some cases, they may even forego the down payment requirement. When researching different lending options, business owners should make sure to find a lender who is able to break down the closings costs and has the business’ best interest in mind. Make sure to ask questions to find out about all of the fees associated with the loan product
Limited documentation required
One additional benefit that many business owners appreciate with bridge lending is that there is usually much less documentation required compared to when applying for traditional loan products. With bridge lending, because the terms of the loan are much shorter than with traditional loans, applying businesses will only need to provide bank statements and personal credit statements to demonstrate to the lender that their business will be able to pay them back and that their business will stay open for the terms of the loan. It’s also important to clarify the down payment requirement to avoid surprises in the future.
Underwriting and closing within 24-48 hours
Bridge financing can be approved within 24 to 48 hours after application. After that, you’ll only have to deal with the closing costs. Many business owners utilize bridge financing because they need money quickly, and there aren’t many loan options that can get cash into business owners’ hands as fast as bridge lending. Most lenders understand that when business owners are considering bridge lending, there is a high sense of urgency to receive funds quickly, however, this does usually come with increased rates.
Flexible repayment terms
Although interest rates are typically higher for bridge loans compared to conventional loans, because the terms are much shorter, most lenders offer flexible repayment terms. Plus, if you put in a downpayment, your chance of getting favorable terms significantly increases.
It is important for business owners to find a lender that fits their work and communication styles so that they can have open communication and discuss term and repayment options that work best for their business finance plans.
What are the best industries for Bridge Loans?
Bridge lending solutions are great solutions for industries that need quick access to cash. Bridge loans allow business owners to utilize cash immediately, often when there is future funding on the way, and many different types of businesses apply for these types of loans. From construction companies, medical offices, manufacturers, or transportation companies, business bridge loans are a popular financing solution for many business owners because they all have one thing in common – they often find themselves in situations where they need cash fast.
Regardless of the industry that a business works in, it is important to consider cash flow or other financing options, such as a business line of credit, before applying for a bridge loan. Bridge loans are intended to be short in duration, as they are just for bridging gaps.
For business owners considering a bridge loan for their working capital needs, the most important thing to consider is to make sure that their cash flow can support the payments for the terms throughout the duration of the bridge loan. If a business ends up in a situation where they can’t make their payments, it will hurt their credit and could ruin the business. Business owners should make sure to find a lender they can discuss their financial situation extensively to help determine if bridge lending is right for their business.+
How does the Bridge Loan process work?
One of the first things business owners need to ask when researching bridge loans is how it works. Luckily, with the amount of information One of the first things business owners need to ask when researching bridge loans is how it works. Luckily, with the amount of information available on the internet, it is easy to find out what type of bridge loan options are available and how to find business bridge loan lenders that are right for any business. Some online resources even provide a bridge loan calculator and other tools for business owners to learn about bridge loans.
A bridge loan is not very different from most traditional loan options; other than that, the bridge loan terms are usually shorter. Bridge loans are designed to help business owners bridge gaps in working capital for short periods – usually to fill in cash to take advantage of growth opportunities or help in cash flow shortage situations, especially for seasonal businesses. Some lenders will require collateral or down payment to secure the funds for a bridge loan, and other lenders will take liens on other assets that the borrowing business can put up to secure the funds. It is essential for business owners to find a lender that they can work with to negotiate terms that work best for their business.
Because bridge loans are based on cash flow, and the bridge loan terms are shorter than with other lending options, the qualification and application process is not as long and tedious as with some of the different lending products available for business owners. The process to secure a bridge loan is more straightforward than other types of financing. Lenders will need to look at some bank statements and check the business owner’s credit to know if the business will pay back the borrowed funds. Additionally, a business’ credit doesn’t need to be as good as the high credit score required to qualify for other types of lending – the lender will need evidence that the borrowing business will still be around and able to pay back funds for the terms of the loan. Additionally, a down payment may be required, especially if the business’ credentials aren’t that good.
Typically, with a paperless, one-page application and limited documentation necessary, funds could be available as quick as 24 hours. Once the loan is secured, payments will be made daily, weekly, or monthly, depending on the lender, until the loan is paid off in full.
One thing to note about bridge loans is that because there are shorter terms and the urgency to get the funds is higher than with other loan options, the interest rates tend to be higher than with other funding options. An innovative small business owner will research multiple funding options to create a financing plan that works optimally for their situation. Bridge loans are one option to help fill gaps by taking advantage of a quicker underwriting process for short-term loans that can help immediate financing needs.
Bridge Lending Solutions
Bridge Lending Solutions is an online installment loan firm specializing in consumer loans. Unlike many other lenders, they provide customers with numerous payment alternatives to better manage their money. They provide prompt and secure service with no middlemen and fast, pleasant U.S.-based personnel as a direct lender. They cherish their clients and recognize that consumer loyalty must be earned.
Bridge Loan Case Study
One of our clients own a dental practice, and the company recently expanded into the office next door. The landlord was paying for a small percentage of the buildout, but there was a need for down payment and additional capital for both dental equipment and working capital for our client to hire a new dental hygienist. By utilizing an equipment financing program, we were able to help our client purchase a new dental chair from Tiger Medical and worked out a bridge loan for working capital to build and develop the remainder of the space and hire their new dental hygienist. In this case, a bridge loan was the best use of financing for working capital for our client because really there was only a gap of 6 months that our client needed to bridge before the revenue from the new equipment would stabilize to pay for the new dental hygienist on staff.
Frequently Asked Questions
Common Questions. Straight Answers.
In essence, bridge loans are utilized by small business owners to address short-term business expenses while they’re waiting for a more permanent financing option to come to fruition.
Suppose Company X comes across an opportunity to acquire its competitor, Company Y, for $1 million. However, Company Z is also showing an interest in buying Company Y. Since other types of financing take a long time to get approved for, Company X applies for bridge financing and gets approved immediately. Though Company X has received the funding, the company is still applying for other forms of loan to refinance the bridge loan.