Capitalize Loans

What is a Bridge Loan and How it can Help Your Business Survive!

Andres Fernandez

April 7, 2021 - Digital Marketing Manager -

5 min read

bridge loan for business over the water

Bridge loans is a form of short-term funding that is intended to help businesses acquire assets or complete assignments. It is designed to help a company meet its obligations until it secures a long-term business loan. This type of bridge loan is commonly used for commercial real estate. Bridge loans are helpful during time-restricted transactions where timing is crucial for a business to take advantage of an opportunity. 

When taking out a bridge loan, the business use the funds to buy or upgrade certain assets that can potentially increase their revenue or lower their costs, or both! In addition, it’s a useful way for a business to finance its own operations entirely, not just certain aspects of the business. Once the business is able to secure long-term financing, you’re able to use the funds from the new long-term loan to pay off the bridge loan you acquired first. 

 

Businesses use bridge loans that (often carry a higher interest rate than conventional long-term financing) can help fill short-term funding gaps. These include asset purchases, such as real estate, equipment, and inventory.

5 Common uses for Bridge Loan

Real Estate Purchase

You can financing to acquire property abbreviated underwriting.

Real Estate Improvement

You can financing to acquire property abbreviated underwriting.

Equipment Purchase

You can buy equipment at auction or secondhand.

Purchase a Foreclosed Asset

You can buy deeply discounted assets with financing secured by outside collateral.

Seasonal Inventory Purchase

You can purchase or restock inventory without using a merchant cash advance

These are the most commonly used cases businesses use when they acquire a bridge loan. Yet, having to be the most common does not mean there aren’t other uses for the bridge loan. Typically they are used in cases where businesses have short-term funding needs or an opportunity to purchase assets/ Using bridge loans, your business can take advantage of these opportunities without being slowed down by underwriting, tiding you over until you can secure long-term financing.

Buying Real Estate 

Commercial real estate can be a tricky, time consuming process for financing. Lenders would review the company’s financials, plus property-specific issues like inspections and appraisals. The process can take longer than usual if you have to do any retrofitting to the property, especially if permits are required or if issues arise with your personal finances. With a lot to do, underwriting a conventional term loan for commercial property can easily take longer than the 30 to 45 days allowed in most purchase agreements.

Buying Real Estate 

Bridge loans can be a great opportunity for expansion or renovations for you property or business. Many industrial, manufacturing and retail companies occasionally need to expand, renovate, or otherwise improve property in order to expand production or develop new offerings. But getting a conventional term loan to start work can be difficult, especially if the property is already fully collateralized.

 

When a opportunity walks by in front of you, don’t let it pass by. Whether to expand and or renovate your property because this can add value to your property or refine your product lines. Reason being is because not getting a conventional term loan right then is somewhat impossible. For this instance, a bridge loan can help you get started on the next project without waiting a long, drawn-out underwriting process. 

Buying Equipment

Your business could get a big project that requires you to buy new equipment, but getting a long term loan to purchase is like trying to win the lottery. Cases like these, it’s important to know what equipment you’ll need that will allow you to finish the project and increase revenue because of it. Applying for a bridge loan to buy equipment is the best option. While the bridge loan helps you acquire the equipment, the equipment will help you gain more money, thus allowing you to refinance with a larger or longer term loan. 

Acquiring a Foreclosed Asset

If you’ve ever been to a sheriff’s auction, you know that sometimes you can buy some great assets for just pennies on the dollar, but you don’t always know what you’ll find. This lack of specifics makes it basically impossible to arrange conventional financing before you bid at an auction.

 

Even if you do know what you plan to buy, many lenders won’t lend against assets being purchased out of foreclosure. Many lenders require you to pay for those assets with cash or through loans secured by other assets.

 

In this case, you can get a bridge loan secured by separate collateral and use those funds to make an offer or bid on an asset. Then, you can make interest-only payments until you can refinance with a conventional loan.

Meeting Seasonal Inventory Needs

Many retailers use lines of credit to purchase inventory, Unfortuntely, some businesses dont have access to that type of funding or have already maxed out their line. In this event, a merchant cash advance may be the only other way to buy muhc-needed inventory – to restock after a sudden surge in sales or prepare for an influx of business.

 

You can use bridge loans to buy inventory, ten refinance with a longer term loan or pay off the bridge with the proceeds from your sales.