If you need a bit of money immediately to tide you over until more financing can be found, then a bridging loan might be for you. In this article, we’re going to look at bridge financing along with how to apply for one.
What is bridge financing?
Bridge loans help those who may need to cover costs in between large financial transactions. For example, let’s say you need to buy a house before you sell your current one. You know that you will receive money once your house sells, but in the mean time you don’t have enough money to cover all of your costs. You don’t need to borrow money for the next thirty years to cover this gap, you just need a short influx of cash that can help you cover costs for a short period of time.
Bridge loans help you jump over that gap in time, by providing you with a short term loan. Once your house sells you will have the money to pay off this new found debt.
These bridge finance options are normally only for short term fund-raising situations. They are often utilized by large businesses and institutions but could also be for small businesses or even individuals.
Bridge financing often helps homeowners who want to renovate a home in preparation for selling or refinancing. Once the renovations are finished and the house is sold you’ll have plenty of cash available, but in the mean time you need just a little money to help finish your housing upgrades.
Sometimes businesses apply for bridge loans when they need money to cover the day-to-day costs of running a business. Business owners may know a contract is about to finalized, but they can’t wait for those big checks to arrive in the mail. Instead they use a bridge loan to fill the gap between when the work is completed and when they will be paid.
What are the drawbacks of bridging loans?
While bridge financing could be a great option for you or your business, they aren’t for everyone. There are actually a few negatives associated with taking out a bridging loan, so let’s have a look at them:
First, they can be expensive. You might be able to find better financing options elsewhere that don’t have lower interest rates. Many bridging loan companies will rely on people who are desperate and therefore willing to pay a higher rate. So if you can find finance elsewhere, it might be a better option to do that.
You will also increase your debt. While bridge loans can be a great short-term option, you need to be aware that your overall debt levels will increase. This could put more pressure on your finances and the situation as a whole. Make sure that you can afford to take on more debt and that it’s the right choice for you.
What are the advantages of bridge financing?
The biggest advantage of a bridging loan is that it gives you the money and time to complete important projects or get to a point where you can release additional financing. This gives you a competitive advantage over those in your industry who can’t do the same. They can also be a more convenient fund-raising option than many alternatives and could provide you with the money you need quickly and easily.
How to apply for bridge financing
It’s relatively easy to apply for a bridging loan, and there are a number of places that’ll help you get a quick quote online. Simply shop around for the best deal and make sure you’ve read all the small print comprehensively.