Unless you know the world of loans and financing, you might be asking yourself, what’s a bridge loan? Business bridge loans cover the gap when you need to take care of specific business expenses in a relatively short time. While you may have heard of a bridge loan for buying residential real estate, business bridge loans serve as a temporary funding solution while a company waits on capital or wants to buy commercial property.
Having an approved, secured bridge loan gives you access to immediate working capital during your business’ down cycles. If your cash flow falls short and you need immediate cash, you can get the money you require with bridge loan financing.
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Like some alternative business loans, a commercial bridge loan allows you to pay for time-sensitive costs with the intention of refinancing them or paying them off quickly. Besides buying commercial real estate, you can use a secured bridge loan to:
For many businesses in need of a quick loan to cover short-lived debt, bridge financing is the best solution. It gets you what you need when you need it without the hassle.
A commercial bridge loan works similarly to other business loans. To begin a business loan application, you simply apply with a bridge financing lender, supply the required documents, and wait for an approval on the loan. However, instead of waiting several weeks, you can receive the funding in a matter of hours.
The lender will consider factors, such as the loan-to-cost ratio (LTC), or the percent of the total cost they can allocate to a borrower. Usually, the LTC ranges from 70% to 80%.
For instance, let’s say you wish to obtain POS equipment from a payment processor. The lender will cover 80% of the total cost of the hardware, leaving you to come up with the remaining 20%.
The Small Business Administration offers Express Bridge Loans to cover short-term expenses in the wake of disasters, including COVID-19. An SBA bridge loan requires that you were in business on March 13, 2020 and that you can demonstrate the need you have for the bridge loan. The SBA bridge loan application can be found on the SBA website. If you have previously received financing through another bank and had a relationship with them as of March 2020, you can ask them about bridge financing and see if you qualify for a bridge loan through them.
Because a bridge loan represents a temporary, short-term solution for a cash flow issue, the loan normally has repayment terms of up to 2 years. In most instances though, you will need to pay off the loan in about 6 months—just enough time to secure longer-term financing.
A lender often will consider your debt-to-income ratio (DTI) and debt coverage service ratio (DCSR) when reviewing your eligibility for bridge loan financing. These percentages will allow the loan issuer to see if you have enough of a cash flow to cover your current expenses and manage the costs associated with a longer-term loan.
Working CapitalTransportation Company
Merchant Cash AdvanceBar Restaurant
Line of CreditPPE Wholesale
When considering bridge financing, you need to ask yourself if this loan is the right choice for your business. Why are you asking for the funds? For short-term financing and quick solutions, business bridge loans are the way to go. Close a deal quickly, work on your credit, acquire another business, or renovate your business property with a secured bridge loan.
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