Nowadays, there are a lot of finance options that you can select from. Thus, it can be challenging to determine which financial product will provide the best benefits to businesses. One of the commercial products that are becoming even more popular among businesses are bridge loans. Now, what is bridging loans, why are they extensively growing in the finance market, and how can your business benefit from this loan type?
What is a Bridge Loan?
In terms of businesses, a bridging loan is known as a short-term loan. Usually, businesses can easily access a bridging loan. But in finance, its main purpose is to bridge a gap to effectively back up a business while transitioning in finance. Once you can find a more permanent type of finance, then you need to repay the bridging loan in full.
The word ‘bridging’ is used to coin this loan type because it can bridge a gap in income streams or get you from one place to another.
In the past, bridging loans were primarily utilized to fund auction buying, property purchases, and property developments since there was a distinct commercial purpose at the end that reassures the lender that they can retrieve their money. Now, aside from using a bridging loan for your property purchases, you can use it for multiple purposes as well. All lenders want to see is a definite exit plan so that they can take back their money.
Usually, businesses exit a bridge loan if they have a guaranteed income in place, make a sale, or move to another financial product like a mortgage. Because a bridging loan is naturally short-term, interest rates can be higher. However, decent lenders can be flexible in terms of interest repayments, enabling you to repay a huge sum of interest at the end of the loan.
Major Advantages of a Bridging Loan
- No Extra Fees
Since the loan is required to be repaid in a couple of weeks or months, it indicates that the loan is affordable and the interest is controlled even if it usually has higher interest rates. So, you don’t need to have any anxiety about the increasing monthly rates or interest costs. Rather, your lender will give you a well-defined and flexible interest structure on how you can pay your interest.
- Easier Lending
While many business loans need a lot of information, which includes proof of income, credit scores, lending history, and the business’s financial position, bridging loans are a type of asset-backed lending. Meaning, you don’t need to undergo lengthy checks because the loan is secured against an asset of value.
- Easy Access to Cash
Businesses can quickly arrange bridging loans. Usually, bridge loans a lot faster compared to other finance types. Take note that this finance type will typically be available in 24 to 48 hours. If you think that a business loan or mortgage will take 1-2 months to organize, opting for a bridging loan could be your best option if there’s an opportunity that’s too good to miss or you want financial support in case of emergency.
Though a bridge loan is usually utilized for property purchases, you can use this finance type for different types of purposes without being asked questions from the lenders. All they want to see is a verification that the loan will be asset-backed and you can repay the loan on time.