A small business might be waiting to receive funds, but what if the money will arrive within several months and its cash needs are immediate, or even urgent?
How can someone meet their short-term financial needs in this situation?
A bridge loan could be the answer.
Bridge loans provide quick liquidity to help you meet your financial commitments.
Let’s explore what a bridge loan is, how it works and if it’s a good idea for your business.
What is a bridge loan?
A bridge loan has three main characteristics:
1. It is short term
These loans generally last 12 months or less. Normally, you would finish paying a bridge loan in a few months.
2. You know how you will pay
You may not know the exact date on which you will have access to the funds with which you will pay the bridge loan. But you will always know where the money will come from.
For example, you might be waiting for a large customer to pay or be approved for a bank loan.
3. Interest rates can be high and you may have to present collateral
Bridge loans, being short term, usually have a high interest rate. Borrowers may also ask you to provide collateral proportions.
What is collateral?
Also called a guarantee, it is a guarantee, which can take the form of property, machinery or other commercial assets. If you default on a loan, these assets could be confiscated and sold for the lender to recover your money.
While bridge loans may have a useful purpose, entrepreneurs should know that a small business loan from Mertilesos Financial can be used as a bridge loan, but without high rates or collateral.
At Mertilesos Financial, our loans are very friendly and accessible to the widest possible range of business owners.
How does a bridge loan work?
A bridge loan involves a lender who provides funds that are paid when the business obtains long-term financing.
Let’s understand how a bridge loan works with the help of an example:
Antonio, owner of a successful restaurant specializing in Cuban food, plans to open another restaurant in a new location. The capital investment involved is $ 100,000. That is why he has applied for an SBA loan , but it could take three months or more to receive the funds.
Antonio learns, through a friend, that the restaurant owner is selling his kitchen equipment at a great discount. However, the seller wants to complete the transaction within a week.
What should Antonio do? There are still three months left before I receive the SBA loan.
You can approach a lender, get a bridge loan and use the funds to buy the kitchen equipment you need. Subsequently, the SBA loan cash can be used to pay the bridge loan.
If Antonio had decided to take a small business loan from Mertilesos Financial instead of a bridge loan, he would have received the following benefits:
- An annual interest rate in the range of 12% to 24.75%
- A payment period of 24 to 60 months
- We do not charge penalty for prepayment
- The financing can last only 3 days
- Orientation of our loan specialists in both English and Spanish
At Mertilesos Financial we make a special effort to serve the interests of Latino business owners .
Types of bridge loans
We share a brief description of the most common types of bridge loans:
Bridge loans for business and real estate
If you are planning to sell your home and buy a new one with the funds, a bridge loan can help. You could use the bridging loan funds to pay the amount you owe on your mortgage and even for the down payment on your new home. Later, you could pay your bridge loan when the sale of your old house is made.
Business owners can also use bridge loans. If your company qualifies for a government loan or an SBA loan, a bridge loan can provide you with the money you need in what you receive the funds.
Remember that while SBA loans have low interest rates, the approval procedure is cumbersome. It may be weeks or even months before you have access to money. This is why a bridge loan is a great option.
Closed and open bridge loans
A closed bridge loan is refundable at a predetermined date. The borrower is sure that he can pay within a specific time frame thanks to another source (such as an SBA loan).
An open bridge loan, on the other hand, is not refundable on a defined date. The borrower can pay when funds are available. This type of bridge loan is useful when you plan to repay it with the money you will receive from the sale of real estate (you never know the exact date on which a real estate sale will be arranged).
First load and second load bridge loans
A first load bridge loan is secured by a first charge on the property or assets that have been provided as collateral. If the loan is not repaid, the lender will have the first right to the amount available from the sale of the collateral.
A second charge bridge loan is less secure for the lender. If there is a default on this type of loan, the lender will receive funds only after the first charge has been paid.
Pros and cons of bridge loans
Bridge loans have great benefits:
- The biggest advantage of a bridge loan is that it is generally available within a short period. This may allow you to capitalize on a business opportunity that you might otherwise lose.
- A bridge loan can have a flexible payment period. This flexibility can be invaluable, especially in a situation where you are not sure when you will receive money from a long-term source (such as an SBA loan or a real estate sale).
However, bridge loans also have certain disadvantages:
- They can be expensive.
- You may have to pay additional fees, such as administration fees, appraisal fees, loan origination fees and other similar charges.
If you need a bridge loan, consider the benefits you will get with a small business loan from Mertilesos Financial.
We have flexible loan approval rules, and you don’t need a minimum credit score (FICO) to apply for it. Even applicants without a credit history are eligible for our loan program.
Another great advantage we offer is that you do not need to provide any collateral.
A bridge to business success
Bridge loans can provide a flexible financing option. However, a small business loan from Mertilesos Financial is a better option . We offer loan amounts of up to $ 400,000 and provide funds within 3 days after approval.
Learn how to use a loan from Mertilesos Financial as a bridge loan.
Our motto, “Do not put aside any small business” motivates our team members to help you obtain the funds you need to expand your business and achieve your dreams.
Request a quote for a loan today. Our application will take only a few minutes and you will know immediately if you prequalify, and it will not affect your credit.
Our team will be happy to answer any questions you may have.