Consumers sometimes use bridge loans when they are between real estate purchases. But businesses can use them as well if they need a temporary means of funding while considering their next move. Without this type of financing, business survival and growth can be challenging. Here’s what you need to know about bridge loans and why you might want to consider one.
What is a Bridge Loan?
A commercial bridge loan is known as a swing loan or gap financing. It is a short-term loan used to “bridge” a temporary financing gap until a more long-term solution is secured. These loans can last anywhere from several months to a few years and may be issued by banks, private lenders, or alternative lenders.
Pros and Cons of Bridge Loans
If your business needs fast access to funding to fill a gap, bridge loans may sound perfect. But before you jump into any financing decisions, you’ll want to consider the pros and cons.
Pros
- Funding is fast. If you get approved, funding usually takes place in less than a week.
- They are short-term loans. Many of these loans have repayment terms of one year or less, meaning you aren’t signing up for something that will impact your business for years to come.
- Repayment might be flexible. Once you obtain your long-term financing, you can decide whether to keep the loan or pay it off in full.
Cons
- They’re not always easy to find. These types of commercial loans are not easy to obtain from traditional banks and credit unions. But alternative lenders can often help.
- They can be costly. These loans often have rather high interest and transaction rates. There may be other options that are more affordable.
- There is risk involved. Some businesses take out bridge loans in anticipation of a future deal coming through to help with repayment. If plans don’t materialize, any collateral used for the loan could be in jeopardy.
Why Should You Consider a Bridge Loan?
You may want to consider a commercial bridge loan if you are purchasing commercial property and need to bridge the time between your closing and when you can get permanent financing. You can similarly use bridge loans as an interim solution to short-term financing needs for things like inventory, equipment, and other operational expenses while waiting for a longer-term solution to become available.
Learn More About Your Business Funding Options With CAB Capital
This loan type might be the ideal choice for your business to satisfy a short-term need. But there may be other options available. If you are interested in learning more, CAB Capital can help. We assist small businesses in exploring alternative lending solutions that meet their particular business needs. Contact us today to schedule a free consultation.