What is a bridge loan?
A bridge loan is a type of short-term loan that is used to cover an interval between two transactions, typically the gap between two longer-term financing loans. Many companies use these types of loans when necessary to cover capital shortfalls that may occur when a business must repay one longer-term loan before it has enough time to obtain another long-term loan.
Types of Bridge Loans
Business will often search for these loans for a multitude of purposes. Operating capital and mortgage bridge loans are typically the most common bridge loans. For example, say a company’s mortgage loan is due on the company’s office space before the company is able to find a suitable replacement long-term mortgage loan. The business may acquire a bridge loan to pay off the current mortgage that is owed. Then, once the business is able to acquire a new long-term loan, it will pay off the bridge loan.
Advantages of Bridge Loans
Businesses can typically acquire bridge loans more easily than they can long-term financing options. This is because lenders involved in the bridge loan industry understand that these loans are only acquired to provide gap financing—not long-term solutions. This means that businesses are typically more willing to pay higher interest rates or origination fees. Not only that, but bridge loan lenders will often customize bridge loans to suit a variety of different needs. Unlike a long-term commercial loan, the whole idea behind a bridge loan is that they are easy and quick to obtain.
Another benefit of a bridge loan is that the business can often pay off a bridge loan at any time without facing a prepayment penalty. This is much different than most commercial mortgage loans, where a borrower will face a hefty penalty for paying off the loan too soon—making bridge loans a very flexible option for many businesses.
Quite simply, bridge loans can be expensive. As mentioned previously, since these types of loans are quick and easy to obtain, they often spawn high interest rates or origination fees. It’s a little known truth in the financing industry that the quicker a business can access money, and the easier it is for the business to qualify for the money, the higher financing costs the company will pay. The higher financing costs explain why companies use bridge loans primarily as strictly a short-term solution, rather than a long-term financing tool.
At Skytop Business Loans we pride ourselves in being able to fund business based on just that – their business. While your specific business type can depend on what programs will work the best—it is not going to be a deciding factor when it comes to securing the approval for the small business loan you need to grow. If you are looking for a bridge loan, we can help. Give us a call today at 888-401-5697 to go over any questions and learn about options available to you, or check us out online at www.skytopbusinessloans.com!