The Basics of Bridge Financing
Sometimes businesses are presented with an opportunity that would be highly beneficial for the business. The opportunity may help expand the business, combat competition, or meet immediate financial needs for operations. There are many available options for businesses to get financing, and it’s important to match the businesses needs with the best financing option. One option available to some businesses is the commercial bridge loan, which is designed for short-term financial assistance.
Bridge financing is used to help facilitate the use of funds by a business that does not have the financing immediately available for an opportunity. As the name suggests, a commercial bridge loan bridges the gap between what the business wants to do and what it has the cash flow to be able to do. The commercial bridge loan may be useful when businesses want to take advantage of a time-sensitive opportunity or to circumvent restrictions related to liquidity in the business.
This type of loan is often used for investment purchases that are time-sensitive. However, they are also used to deal with an upcoming balloon payment or other expense for which the business does not have the cash flow within the limited time frame needed. A commercial bridge loan is used as temporary financing to upgrade, expand, or maintain a business’s operations and plans when cash flow doesn’t allow for it to happen out of the business’s budget.
While these types of loans seem highly beneficial for businesses, there are elements that have to be weighed to decide whether the commercial bridge loan is the best option or not. Since these loans are short-term financing, they have a greater risk level and often come with higher interest rates in comparison to permanent commercial mortgage loans. The terms are typically between six months and one year, with limited opportunities to extend the terms of the loan for additional fees.
Whether trying to meet a balloon payment or trying to build business through a time-sensitive purchase, a commercial bridge loan is an effective way to get short-term financing for a business. With the ability to take advantage of an opportunity, a business can not only meet its immediate needs but help establish the business’s success for the future, as well.