Everything You Need to Know About Commercial Bridge Loans
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The small business financing process can take time, and securing long-term financing can be extensive. Some business loans can take a few weeks to a few months to be approved, leaving business owners with a waiting period between applying for funds and receiving them. When this happens, small business owners may be able to turn to bridge loans for help.
What is a Commercial Bridge Loan?
Commercial bridge loans are short-term loans meant to provide quick cash flow for businesses to “bridge” the gap between their current needs for financing as they wait to secure a more long-term solution.
If a business has applied for a small business loan but finds itself in a cash crunch, unable to pay business expenses as they wait to receive its funds, it might want to consider a bridge loan. This short-term loan option provides businesses with the working capital they need for immediate expenses.
Construction companies, in particular, are a type of business that can utilize bridge loans. Owners of construction businesses can use bridge loans to cover expenses like payroll and equipment while waiting on clients to pay for projects.
Bridge loans may also be ideal for small businesses leveraging funding to buy real estate, expand operations, pay taxes, renovate, or manage short-term cash flow, among other reasons.
An important thing to remember about bridge loans is that they are only temporary funding solutions. Terms for bridge loans are short and may have higher rates. This means your business should only consider applying for a bridge loan if it can pay off the loan quickly and is confident it can secure long-term financing elsewhere.
The Pros and Cons of Bridge Loans
At a glance, bridge loans can feel like lifesavers, but just like with every other small business financing option, it’s essential to understand both the pros and cons of bridge loans to make the most advantageous decision for your company.
- Quick access to working capital
- Generally quick to fund
- Flexible payments and terms
- Generally faster application processes
- Can be risky
- Can be expensive
- Can have higher rates
- Can be more difficult to obtain
Qualifications for a Bridge Loan
Bridge loans generally don’t have as strict of requirements as traditional loans, making them a great short-term solution. However, for this reason, bridge loans tend to have higher rates than other financing options.
Most lenders will require a minimum debt-to-ratio income. This will determine if your business has enough cash flow to cover the costs associated with your loan.
A minimum business credit score and credit history check are also required to determine your business’ eligibility and any other risk factors.
If your business is using a bridge loan to help fund the purchase of a new property, the lenders often factor in the location, condition, and any existing liens on the property when determining if your business qualifies for funds.
Additionally, the lender may require your business to prove it can cover the loan payments or they may require a business plan for how your business intends to cover financing after your bridge loan ends. With bridge loans, borrowers are usually expected to repay the loans in full.
Where to Apply for a Bridge Loan
Bridge loans can be obtained from banks, credit unions, or alternative business funders.
Requirements for obtaining a bridge loan will understandably vary across lenders, but you can expect similar details of your business’s financial history to be necessary.
How to Apply for a Bridge Loan
Before applying for a bridge loan, it’s a good idea for your business to know exactly what it will use the loan for. Your business should also be aware of the repayment terms it can afford.
Knowing this information will help your business determine if a short-term immediate funds option like a bridge loan is best or if it needs a longer-term financing option.
It’s also essential to prepare items such as your business’s current credit score and copies of your business bank statements before speaking to lenders about applying for a bridge loan. You should also know how fast your business needs funds. These will be some questions asked during the application process.
If your business is considering applying for a bridge loan with Rapid Finance, here are several features to know about.
- Your business can apply through our online portal
- Our bridge loans start at $5,001 and range up to $1 million
- We offer flexible payment options with automatic daily, weekly, or monthly options
- If approved, our portal is available to your business at any time, so you can always review your business’s account
Once your business has decided to apply for a bridge loan with Rapid Finance, the process is quite simple.
- Visit our online portal to fill out an application. Tell us about your company, goals, and objectives. We recommend having the necessary paperwork on hand to make the process faster.
Let Us Review
- Our team will carefully review your business application. Our trusted business advisors will reach out if we need any additional information.
- Our team will send out the approved funds to your business bank account if approved.
Is a Bridge Loan Right for your business?
While a commercial bridge loan can be helpful for small businesses, they aren’t the right choice for every business.
Typically, your business needs excellent credit and a low debt-to-income ratio to qualify for a bridge loan.
A commercial bridge loan won’t be a good fit if your business needs a long-term solution for cash flow concerns.
However, if your business needs funds to close a deal quickly, acquire real estate, expand operations, or renovate, a bridge loan could be a profitable option.
While a bridge loan can be a helpful solution for immediate financial requirements, your business needs to recognize if they are the right solution for your particular business desires.
If your business decides to apply for a bridge loan, be sure that your business meets all of the qualifications, will be able to pay back the funds quickly and can secure long-term financing once the terms of your bridge loan end.