For example, let’s say that you have long-term financing set up for your business’s expansion project. This long-term financing doesn’t start until the beginning of next year. In the meantime, you need to finance the project. If you chose to get a bridge loan, you’d take out a short-term loan that matures when your long-term financing begins. That way, you’d have access to funds to start your project while you wait for your permanent financing. Then, you’d pay off your bridge loan using the proceeds from your permanent financing. Of course, this is just one example of one scenario. Bridge loans come with all different kinds of terms, conditions, and other considerations. In this post, we’ll review everything you need to know about bridge loans to determine if they might be a fit for your business.
Bridge Loan Definition:Also called bridge financing, a bridging loan, or a swing loan, a bridge loan is a short-term loan structured to provide financing until the borrower obtains permanent financing. Bridge loans are usually short-term and come due in 12 months or less. In some cases, these loans may have a term of up to three years. If you’re interested in pursuing a small business loan for your business’s cash flow needs, click the link below to get your free quote: [cta-freequote]
Bridge Loan Terms, Repayment and Application ProcessesBridge loan terms and their application processes vary widely depending on the type of borrower and lender. For example, let’s say you’re a residential real estate developer looking to purchase vacant land and build homes to later sell. You plan to get a construction loan, but in the meantime, you need financing to cover the purchase price of the land. Therefore, you can get this type of loan to bridge the gap. In this case, you’ll need to work with a lender that provides bridge loans for land. There are also lenders that provide bridge loans for startups that need cash before their next funding round. In both scenarios, the individual lenders will have specific application requirements and terms for their bridge loans. Generally speaking, though, these loans typically come with higher interest rates (in comparison to other loans), short terms, and stringent collateral requirements. The application process will usually look similar to that of a term loan or personal loan. During the application process, you’ll be expected to provide the following:
- Proof of down payment
- Credit score
- Financial capacity
- Past business experience