If your business deals mainly in the real estate industry and has cash moving in and out of accounts on a daily basis, a bridge loan is a perfect solution. A bridge loan is there to “bridge” a gap in a cash flow statement or gap in a project that needs to be filled. In order to fill the gap, it costs money, money you don’t have or are not willing to spend. A bridge loan will come in and make sure that project is completed within budget and on time.
A bridge loan (usually bridging loan in the United Kingdom, also known as a “caveat loan,” and also known in some applications as aswing loan) is a type of short-term loan, typically taken out for a period of 2 weeks to 3 yearspending the arrangement of larger or longer-term financing.
Bridge loans are typically more expensive than conventional financing to compensate for the additional risk of the loan. Bridge loans typically have a higher interest rate, points and other costs that are amortized over a shorter period, and various fees and other “sweeteners” (such as equity participation by the lender in some loans). The lender also may require cross-collateralization and a lower loan-to-value ratio. On the other hand they are typically arranged quickly with relatively little documentation.
Banks are not typically the lending institution that will approve a borrower for a bridge loan. Private money lenders and brokers are the best solution for a bridge loan. Before you go an apply for a short term business loan like a bridge loan, make sure you have asked the lender what their underwriting guidelines are. If the lender says they require a good business credit score, then make sure you check your business credit score first. This way you can fix anything negative on the report before the lenders reviews it.
