Business Bridge Loans
Big Dreams need Big Funding!
Do you need to make a large purchase quickly but cannot secure a loan in a timely fashion? Then a business bridge loan may be right for you. Bridge loans are a short-term financing option that can give you the capital needed while securing a long-term loan.
- Allows you to make purchases and then secure long-term financing
- Borrow up to 1 million dollars
- Terms up to 1 year
- Available for a wide range of uses
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What is a Business Bridge Loan?
If you need to make a large purchase, it can be very time-consuming to secure financing. This is particularly true when if you need the money quickly. Luckily, bridge loans are designed to fill in the gap between making a purchase and getting a long-term loan.
A bridge loan is a short-term loan that requires you to make payments while you are waiting to pay it off. Most bridge loans require you only to make monthly interest payments, while others may require a more considerable amount.
Unlike a traditional loan, a bridge loan is not designed to be paid monthly until it is paid off. There are two main types of bridge loans, open and closed, which are determined by whether or not they have a set end date. It is a good idea to look closely at both and get offers for each to make the best decision for your business.
Once you have secured a bridge loan, you must consider repayment. Most bridge loans will have a balloon payment at the end for the amount initially financed. Interest rates on bridge loans typically start at 6% but can go much higher.
Open Bridge:
An open bridge loan does not have a set end date and can continue perpetually, just as a credit card would. Although this may be a good choice if you are unsure how long it will take to get a long-term loan, you will typically pay a higher interest rate than you would with a closed bridge loan.
Closed Bridge
A closed bridge loan has a set end date that is agreed upon when the loan is created. It usually has a more favorable interest rate than an open bridge loan, but the business must repay it within the term limit. The term of a closed bridge loan may vary, but they are generally less than a year. This means it is best used when there is a certainty of securing long-term financing.
Why is a Business Bridge Loan right for me?
Business bridge loans are a great option to get capital quickly. If you need to close on a deal quickly, then a bridge loan may be the best choice. Plus, the amount of paperwork you will need to produce is usually less than with a traditional loan. With less paperwork, your loan will get approved faster, and you will wait less time to get money in your account.
Bridge loans can not only get you capital quickly for purchases, but they can also serve as a stop-gap measure to get operating capital. It is not uncommon to have to wait 30, 60, or 90 days to receive payment for a job. During this time, bills and employees must still get paid. A business bridge loan can help you cover the gap between taking a job and getting paid for it.
Another time when a bridge loan may be right for you is if you are waiting for the sale of the property. A bridge loan can help you cover the expenses between buying and selling property or even help cover renovation costs. They are regularly used by businesses that deal in real estate to cover part of the cost while waiting for a property remodel and sale.
Common Types Business Term Loans
Short-term loans
Short-term loans have a short maturity period, ranging from 3 months to 12 months. These loans are suitable for emergency cases or in case of a shortage in cash flow. Businesses may opt for short-term loans from online lenders who are easily accessible. For these loans, there are higher interest rates and fees. These loans are typically repaid daily, weekly, or monthly.
Medium-term loans
Medium-term loans have a repayment period of between a year to five years. Among business term loans, medium-term loans are the most common. Banks and credit unions are the major lenders of these loans. Additionally, compared to short-term loans, medium-term loans are more affordable.
Long-term loans
Long-term loans have the longest repayment duration ranging from 5 to 25 years. These loans come in large amounts to help businesses invest in significant projects. They are the most affordable of the three term loans.
How to get the best business term loan
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Short Term
- Short repayment period: up to 12 months
- Smaller amounts $10,000+
- Easy to apply for
- Great choices for working capital needs
Medium Term
- Intermediate repayment period: 1-5 years
- Up to 500k
- Great choice to finance business growth
Long Term
- Longest repayment period: 5+ years
- Access to greatest capital: up to millions
- Suitable for business with immaculate credit history & financilas
- Excellent to finance business growth
Pros & Cons
Because bridge loans are designed for filling in the gap between making a payment and obtaining long-term financing, they may be the best choice for everyone. However, there are many instances where a bridge loan is a perfect solution.
Pros
- Quick funding
- Several repayment options
- Only pay towards interest
- Allows fast deal making
Cons
- High interest rates
- Potential end date
- High penalties
- Short term
Common Uses of a Business Bridge Loan?
Bridge loans are commonly used to purchase machinery, inventory, or even cover operating expenses. It is possible to find yourself in a situation where a great deal can be had, but you do not have the funds to cover it. This is a complicated situation because a bank will take weeks to finalize a loan.
A bridge loan can meet this need by getting you access to money within 24 hours. The same goes for purchases where time is of the essence. Delaying a purchase can not only mean lost revenue but also unhappy and lost customers.
Below are just some examples of why you may want to get a bridge loan:
- Purchase equipment
- Order inventory
- Pursue a limited time offer
- Real estate investment
- Property improvements
- Working capital
- Cover operating expenses.
- Business acquisition
- Purchase equipment
- Order inventory
- Pursue a limited time offer
- Business acquisition
- Real estate investment
- Property improvements
- Working capital
- Cover operating expenses.
No matter your reason for getting a bridge loan, you will want to follow it up with a traditional loan that has more favorable terms.
What factors affect business bridge loan rates
A range of factors may affect the rates you pay with a bridge loan, including your business’s cash flow, credit history, and the type of loan you get. Rates on a bridge loan can be upwards of 30% so you will want to make sure that you are getting the best rate. Below are a few factors that will affect the interest rate of your bridge loan and the amount you may qualify for.
- Credit - If your business does not have a good credit history, you may need to use your personal credit to secure a bridge loan. If this is the case, most lenders will require a prime score of 660-680, but there are alternatives if your score is lower.
- Cash Flow - Although the purpose of a bridge loan is to pay it off in one lump sum, you must still make monthly payments in the meantime. You will need proof that the business is capable of repaying the money by producing a cash flow statement. You may also need to show proof that the amount borrowed will generate positive cash flow for your business.
- Closed Vs. Open - The biggest decision you will need to make when getting a bridge is whether it should be open or closed. Although an open bridge loan may sound tempting, you will likely have a higher interest rate than a closed bridge loan.
Requirements of a Business Bridge Loan
There are a few things you should know about when considering a bridge loan. First off, you may need to put any property you are purchasing up as collateral. This means you will lose the property if you default on the loan. While collateral is not always required, it may help you get a lower interest rate or the maximum amount of funding required.
In the event you do use property as collateral, it is important to keep in mind the limitations regarding using one piece of property as collateral on multiple loans. If you already have a loan against a piece of property you can still get a bridge loan, but it will be a second loan. This means a higher risk for a lender since they are second in line to recoup their money which leads to a higher interest rate for you.
Furthermore, a bridge loan will have fees in addition to interest. The primary fee will be for closing costs which could be 3% or more of the amount borrowed. The fees cover origination and administrative fees that are part of creating the loan.
Because bridge loans are so flexible, they will oftentimes not have as strict of requirements as other loans. That is not to say a lender will loan money to anyone, but bridge loans will typically require less documentation than other traditional term loans. The reason for less paperwork is partly due to the fast turnaround time of a bridge loan and the need for lenders to process them quickly.
Some of the documents that you should have ready include:
- Business documents
- Accounting records
- What funds will be used for
- Bank statements
- Tax records
- Personal finance information (for personal guarantee)
How to Apply for a
Business Bridge Loan
If you are in need of a business bridge loan, reach out to Lendnow. Our network of over 50 nationwide lenders will be able to assist you in getting the funding you need for your business in as little as 24 hours. Whether you need to make a large purchase or simply need to make payroll, we can help.
Our application process is quick and easy. Simply submit your business details, and we’ll get back to you as soon as possible with financing options that best suit your situation.
Find the type of loan that is right for you
Few entrepreneurs get it right the first time – it takes resilience to continue when banks say “no”. Don’t let access to capital keep you from advancing!