Commercial bridge loans can be particularly useful for small businesses, providing quick funding when entrepreneurs need it.
Keep reading to learn more about what it is, the best lenders, and its requirements.
What Is A Commercial Bridge Loan?
A commercial bridge loan (or a commercial bridging loan) is a short-term loan that allows borrowers to take advantage of a specific opportunity.
Its name comes from the idea that bridge loans can "bridge the gap" between the financing available and the funding needed until you can obtain more permanent financing.
Commercial bridge loans for businesses are instrumental in helping reach goals and expand the business.
While commercial bridge loans are not usually long-term, they are helpful to borrowers while they await permanent financing.
How Do Commercial Bridge Loans Work?
Because of the short-term nature of commercial bridge loan financing, loans typically come with quick turnaround and high-interest rates. But that's not necessarily the norm.
To get commercial bridge loans, borrowers should have excellent credit and sometimes need to provide collateral.
Who Can Apply For A Commercial Bridge Loan?
Commercial bridge loans are ideal for small businesses and commercial real estate investors who need short-term financing (commercial mortgage bridge loans).
Small businesses and owners of commercial properties often encounter opportunities that require large amounts of money quickly, and business bridge loans can help companies to grow.
Businesses can use bridge loans to finance projects or purchase new office space.
A business may also use a bridge loan for business acquisition.
Meanwhile, real estate investors can use a bridge loan to purchase a new commercial property.
Common Uses For Commercial Bridge Financing
Use While Waiting For The Funds Of A Bank Or SBA Loan
If a big lender approves a commercial loan
, the business can use bridge financing to cover the gap between when they receive approval and when the capital becomes available.
It is a well-known fact that SBA loans can take quite a while (some people report having to wait months from application to funding). Bank loans can also take some time, but not as much.
This helps businesses from having to scrape together funds to keep their operations running until they have access to the bank or SBA loan.
Covering Shortfalls In Cash Flow
Businesses constantly face cash flow problems due to seasonality or other factors that can affect their ability to generate revenue and meet their obligations on time.
A bridge financing loan can help businesses weather these storms and provide enough funds for them to continue operating until things pick up again.
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Sometimes, businesses need money quickly when it comes time for a significant purchase, such as new equipment or real estate – but they don't have the necessary funds yet (or don't have enough).
In these cases, taking out a business bridge loan helps them make the purchase right away before securing more permanent funding through another loan product or by raising capital elsewhere.
Refinancing Existing Debt
When refinancing existing debt (such as credit cards or other forms of high-cost financing), taking out a lower-cost loan via an affordable medium-term solution like this type of funding makes good sense financially.
Especially if doing so will enable your business to pay off its obligations sooner than anticipated while allowing you to focus more resources on growing your business long-term instead of just making large payments toward past debts each month.
Mergers And Acquisitions
Mergers and acquisitions involve complex deals involving lots of paperwork and due diligence that take several months, sometimes even years.
In such cases, using bridge loans enables companies involved in M&A activity to reach key milestones without holding up progress unnecessarily by providing temporary working capital
that can fund:
- legal fees
- advisors' costs
- IT systems integration costs
- and more!
At its core, using an appropriate commercial bridging facility can give businesses greater control over their finances.
This helps fund gaps between outgoing expenses/incoming revenues while enabling them to pursue growth opportunities when they arise.
What To Look For In A Commercial Bridge Loan
Quick Turnaround To Acquire Funding
Most of the time, businesses seek bridge loans for an upcoming project or investment.
Because of the time-sensitive nature of most projects, you need to know how long it will take to apply, get approved, and acquire funding.
Different lenders have different standards for how long their loan process will take.
Because bridge loans move quickly, the turnaround can happen in a few weeks.
When looking into financing options for a loan, ensure that the lender's timeline aligns with your business needs.
Affordable Repayment Amount
Payments on bridging loans are understandably high because of how quickly you'll receive funding.
That said, it's up to you to ensure you can afford the payment plan for your loan.
Many businesses will use the long-term
, permanent they are waiting for to refinance their bridge loan.
If this is your plan, be sure that you will have long-term funding by the time you need to start making payments on the bridge loan.
No matter what your plan is, be sure that loan terms align with your business' timeline.
You'll need a reliable bridge loan lender with any loan.
Whether you prefer public or private lenders, you should do your research.
Reading reviews from Google or other third-party websites can give you insight into previous experiences for borrowers and recurring issues with the lender.
Research can also help you explore your options. Since standards differ among lenders, some could be better suited to your business.
Look at the benefits and downsides of different loan providers before committing to a lender.
Best Commercial Bridge Loan Lenders
If your business needs cash in a matter of weeks (not months) to cover expenses until a larger sum of money is available (like an SBA loan), we are a great option.
You can use our business loans as bridge financing to fill this gap and ensure that your operations aren't hampered by inadequate cash flow.
We offer loans with the following terms:
- Amount: $5,100 to $35,000
- Origination Fee: 6.99%
- Annual Interest Rate: 31.55% to 57%
- Payback period: 24 to 36 Months
Some of our benefits are:
- If everything goes smoothly, you can receive the capital in as fast as 12 days
- We have no hidden fees
- You can apply with an ITIN if you don't have an SSN
- A 100% online process
- Fixed rates and payments
- No early prepayment penalty
- We don't require collateral (but do require UCC filing at closing)
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Avana Capital has quick turnaround times: you can get preapproved in three days. While the standard for turnaround is 45-60 days, AVANA could make it happen in as few as 10.
Borrowers can apply for loans worth up to 25 million dollars, reducing the limitations for projects that need more funding.
AVANA promotes its flexible and client-first approach as a reason to work with them.
Bloomfield Capital provides loans for commercial real estate investors starting at 2 million dollars.
They have a more extended repayment period, allowing for a flexible payment plan that is generally more affordable and aligned with your needs.
This is a significant benefit for businesses that want more time to obtain long-term funding or cannot quickly repay their loans.
PNC Bank is one of the top 10 largest banks in the world and one of the most reliable loan providers.
They offer small loans, from $100,001 to a maximum of $3 million.
PNC Bank is optimal for businesses seeking assistance with smaller projects. It's a good option for smaller companies that can't afford higher loans.
Arbor offers commercial bridge lending, with loans upwards of $8 million.
The main benefit of working with Arbor is that, in many cases, they offer extensions.
Arbor may allow extensions if businesses need more than three months for a project or opportunity (the standard time for commercial bridge loans).
This flexibility is helpful for companies that need immediate financing but expect the project to last longer than a few years.
Arbor also offers lower interest rates than typical commercial bridge loan rates, which can be as low as 6.5%. This makes the loans more affordable.
Clopton Capital provides bridge loans up to $100 million, offering flexibility for businesses to borrow what they need.
Clopton Capital is worth looking into for companies whose needs fit standard offerings and timelines for commercial bridge loans.
Bridge Loans For Small Businesses: Requirements
Unsurprisingly, commercial bridge loans require excellent credit
Even more than typical loans, commercial bridge loans move fast and require large payments, meaning a business must have the resources to repay the loan.
Great credit will confirm that your company is a reliable borrower and will repay the loan.
Commercial bridge loans typically can't be more than the total net worth of those applying for a loan.
To ensure that you meet this requirement, lenders commonly ask to review business and personal financial statements.
The documentation required to apply for a loan varies by lender. It may include tax reports, an action plan, and other standard information.
Lenders want to know that you are in a good place financially to take out a loan.
Along with your credit, lenders will look at your debt-to-income ratio.
Your debt-to-income ratio
shows how much you owe each month in loan payments compared to the income you bring in.
Loan providers look for low debt-to-income ratios that show you'll have an appropriate amount of income after making payments on the loan.
Ready To Bridge The Gap Between Funding And Your Needs?
Commercial bridge loans are a great way to take on new opportunities and move your business forward.
They offer quick access to capital for businesses that may not qualify for traditional financing and can provide you with the flexibility to take advantage of unique opportunities in your market.
If you're looking for a way to bridge the gap between funding and your needs, Camino Financial is here to support minority-owned businesses.
Consider applying for one of our small business loans, it could be just the solution you need.
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Are bridge loans a good idea?
Whether or not a bridge loan is a good idea depends on the borrower's specific circumstances and the loan's purpose.
In general, bridge loans can be a good option for borrowers who need short-term financing to purchase or renovate a property but plan to refinance or sell the property soon to repay the loan.
What are the risks of a bridge loan?
The primary risk associated with bridge loans is the high-interest rates and fees charged to the borrower.
Since people use them for real estate transactions, the property's value can decline, making it difficult for the borrower to sell or refinance the property or repay the loan.
In addition, bridge loans have a short repayment term, usually between a few months to a year, which could pressure the borrower to secure long-term financing quickly.
What is a bridge financing example?
A homeowner who wants to purchase a new home before selling their current home may take out a bridge loan to cover the down payment and closing costs on the new house.
The existing home would secure the bridge loan, and the owners would repay it when they sell it. The borrower could then use the proceeds from the sale of their home to pay off the bridge loan and any other expenses associated with the transaction.
What are the different types of bridging loans?
Commercial bridge financing comes in various types, and each type serves a particular purpose.
Some of the common types of bridge loans include:
- development finance
What are real estate bridge loans?
In real estate, the loan amount depends on the property.
Loans average 70-80% of the property's value, as determined by the lender.
Your lender will also help you develop a payment plan based on your finances.
Finding a lender that aligns with your needs and timeline is important to ensure you can repay the loan.
What are the uses of bridge loans in real estate?
Homeowners may use bridge loans to finance a new home while waiting for their old one to sell, or businesses may apply for a commercial mortgage bridge loan while awaiting long-term funding.