A small business could be expecting funds from some source but may know that the money will only come through after several months. However, their cash requirements could be immediate, even urgent.
How can anyone meet their short-term financing needs in this situation?
A bridge loan could provide the answer.
Bridge loans can provide quick liquidity and help you to meet your financial commitments. Let’s explore what a bridge loan is, how it works, and whether it’s a good idea for your company.
What is a bridge loan?
A bridge loan has three primary characteristics:
1. It’s short-term in nature
These loans are usually taken for 12 months or less. Typically, you would repay a bridge loan within a few months.
2. You know how you are going to repay
You may not be aware of the exact date on which you will have access to the funds with which you will repay the bridge loan. But you would always know where the money is going to come from.
For example, you could be waiting for a big customer to pay or a bank loan to be approved.
3. Interest rates could be high, and you may be required to put up some collateral
Bridge loans, being short-term in nature, usually command a high rate of interest. Borrowers may also have to provide collateral –
What is collateral?
It’s an asset that you offer. It can be forfeited if you don’t pay your loan. It can be a property, machinery, or other business assets.
While bridge loans can serve a useful purpose, entrepreneurs should know that a small business loan from Camino Financial could be used as bridge loans without the high rates or the collateral.
At Camino Financial, our loans include several borrower-friendly features. These ensure that they are accessible to the widest possible range of business owners who require funds.
How does a bridge loan work?
A bridge loan involves a lender providing funds that can be used until the date that the borrowing company secures long-term financing.
Let’s understand how a bridge loan works with the help of an example:
Antonio, who owns a successful restaurant specializing in Cuban food, plans to open another restaurant at a new location. The capital investment involved is $100,000. He has applied for an SBA loan, but it could take three months for the funds to become available.
Antonio learns through a friend that the owner of a restaurant that is closing down is willing to sell his kitchen equipment at a steep discount. However, the seller wants to complete the transaction within a week.
What should Antonio do? His SBA loan is still three months away.
He can approach a lender, get a bridge loan and use the funds to buy the kitchen equipment that he needs. Subsequently, the cash from the SBA loan can be used to repay the bridge loan.
An annual interest rate in the range of 12% to 24.75%.If Antonio had decided to take a Camino Financial Small Business Loan instead of a bridge loan, he would have received the following benefits:
- Loan payback period of 24 to 60 months.
- No prepayment penalty.
- Time from application to funding – as little as 3 days.
- Guidance from our English and Spanish-speaking loan specialists.
Camino Financial makes a special effort to serve the interests of Latino business owners.
Types of bridge loans
Here’s a brief description of the different types of bridge loans that are available:
Bridge loans for business and real estate
If you are planning to sell your home and buy a new house with the funds, a bridge loan can help. It could give you the funds to pay the sum that you owe on your existing mortgage and even for the down payment on your new home. Subsequently, you could pay off your bridge loan when the sale of your old home takes place.
Business owners can utilize bridge loans, too. If your company qualifies for a government loan or an SBA loan, a bridge loan may provide you with the money you need while you wait for your funds.
Remember that while SBA loans carry low rates of interest, the approval procedure is cumbersome, and it could take weeks or even months before you get access to the money. That’s why bridge loans are a great option.
Closed bridge loans and open bridge loans
A closed bridge loan is repayable on a predetermined date. The borrower is sure that funds will be available within a specific timeframe from some other source and that the loan can be repaid.
An open bridge loan, on the other hand, is not repayable on a definite date. The borrower can repay when funds are available. This type of bridge loan is useful when you plan to repay it with the money that you will receive from the sale of real estate.
1st charge bridge loans and 2nd charge bridge loans
A first charge bridging loan is secured by a first charge on the property or the assets that have been provided as collateral. If the loan is not repaid, the lender will have the first right to the amount that is available from the sale of the security.
A second charge bridge loan is less secure for the lender. If there is a default in this type of loan, the lender will receive funds only if there are any funds left over after the lender with a first charge has been paid.
Pros and cons of bridge loans
Bridge loans have some great benefits.
- The greatest advantage of a bridge loan is that it is usually available within a short period. This can allow you to capitalize on a business opportunity that you could otherwise have missed.
- A bridge loan can have a flexible repayment period. You can repay when you have the required funds. This flexibility can be invaluable, especially in a situation where you are not sure when you will receive money from a longer-term source like an SBA loan or the sale of real estate.
However, bridge loans also have certain downsides.
- They can be expensive.
- You could also have to pay additional fees in connection with these loans. Although administration fees, appraisal fees, loan origination fees, and other similar charges may not be very high individually, they could add up to a significant sum.
If you need to take a bridge loan, consider the benefits that you will get with a small business loan from Camino Financial.
We have flexible loan approval norms, and you don’t need a minimum credit (FICO) score to apply. Even applicants without a credit history are eligible for our loan program.
Another big advantage that we offer is that you don’t need to provide any collateral.
A Bridge That Leads You to Success
Bridge loans can provide business owners with a flexible financing option. However, a Camino Financial small business loan could be a better choice. We offer loan amounts up to $400,000 and provide funding as early as within 3 days of approval. Our motto, “No business left behind” motivates our team members to help you secure the funds that you need to expand your business and realize your dreams.
Request a quote for a business loan today. Our form takes just a few minutes to complete, you’ll know immediately if you prequalify, and it doesn’t affect your credit.
Our team will be happy to answer any questions that you may have.