Bridge loans are sometimes called “hard money loans.” This is because the collateral used to secure these loans consists of hard assets, such as real estate. This makes them different from other types of financing, such as invoice factoring, which rely on money expected to come in for sales already made. Bridge loans are typically used to “bridge” a gap in financing that exists when an organization wants to take advantage of a limited-time opportunity that will not be available when the financing for it becomes available.
As with any financing option, there are notable benefits of bridge loans. Here are some to consider:
Fast processing. Unlike traditional loans, the time it takes to apply, be approved, and receive the money in a bridge loan is much faster. This is because these loans are typically used to capitalize on limited-time opportunities.
Bridging a gap. While traditional loans are often structured for more long-term strategy, bridge loans are effective because they focus on short-term financing. That is, they bridge a financial gap between your current financing and what you expect soon.
Buying out a partner. Bridge loans can be a good way to secure financing to buy out a partner in a business. This type of financing is a business expense, and will lead to benefits for the remaining partner(s).
Payback flexibility. Since bridge loans are considered an alternative source of financing, they often have more flexible repayment terms compared to traditional bank loans. This can help ensure you can do what is best for your business.
Dynamic specifications. Dynamic specifications in bridge loans means you have the opportunity to negotiate terms more freely with a lender. That means you may be more likely to get terms that work best for your organization and its needs.
There are many companies that offer bridge loans and will work with you to ensure you can take advantage of a limited-time opportunity available to you. Understanding the benefits of this type of financing can help you to decide whether it is a good option for your business.