Bridge Loan Uses - Money For Your Business Needs

Bridge loans for business are a common feature in many companies. This type of commercial loan is available to help you when your business is in-between two places - where you are and where you want (or need) to be. This means that a bridge loan can enable your business to either carry on as usual, or allow you to move on to the next higher step.

Bridge loans have a higher interest rate than standard loans, and it will often fall somewhere between 12 to 15%. The time frame that you will receive on a commercial bridge loan will typically be anywhere from 1 to 3 years. These loans are given with the intent that they be short-term and only as a temporary means - with the direct lender usually hoping to finance a larger loan soon.

Bridge Loan Uses - Three Possible Situations

1. Buying New Property

When your business has need to either expand its operations or move them to another location, you will often need to get a bridge loan to buy the new property. Since you have not yet sold the original property, your finances will usually be tied up until it gets sold.

Your company takes out a bridge loan in order to secure the new property. Once your old property is sold, you pay back the bridge loan, and get financing for the new – with better interest rates.

A further use could entail using a bridge loan as a way to secure the property while waiting for your commercial loan to go through. A commercial loan can take 3 to 4 months while being processed. If there is a deadline on the building that will expire within that time frame then you need to get a bridge loan to secure your purchase.

2. Purchasing Product

Companies that regularly manufacture their items for sale know that there is a time frame problem that occurs between manufacturing and selling. The cost of buying the various raw materials can be high - especially when purchased in large quantities. This means that there needs to be a large outlay of money each time new product is being developed. This outlay may be more than the company will pull in from the sale of previously made products. Or, larger retail stores may not pay for their orders for many months, and sometimes it takes this long just to process the necessary paperwork - or worse, it could get lost somewhere.

The result is that you have a lack of money while manufacturing the product or waiting for the product to be sold. Your expenses, however, are not diminished during this time. There still are employees to pay since you do not want them to go to work for someone else, insurance policies to provide for, utilities to keep your plant running, and so on. A commercial bridge loan can be obtained from a direct lender or a mortgage broker that can fill in this financial gap.

Some companies, in fact, especially in the manufacturing world, operate this way on a regular basis. It is simply used to get them through the periods of financial slumps. Then, when the money does come in, they pay off the bridge loan, order the materials for the next project, and go on.

3. Improving Business Property

If you have an existing commercial property that has become somewhat rundown, and you are hoping to get a new place, then a bridge loan could be used by improve your existing property to bring in a greater sale value. Since the property has seen better days, this also means that you would not get as much as may be needed to buy the new property or building.

A fixed-up building will always get more in the sale, than one that is sold as a "fixer-upper." A commercial bridge loan would give you the money to repair the existing structure, and this may help you to qualify for a larger loan, or could also be used to pay down some debt that you may have, too. This would also help you to get a better interest rate on the new mortgage.

Advantages Of Using Bridge Loans

Commercial bridge loans are a great way to get the money you need to hold you over until you can either get better financing or the cash you are waiting for. Because they are short-term loans that you get from a direct lender or mortgage broker, they normally require less paperwork than a traditional mortgage. Less paperwork also means that you can have an answer on your commercial bridge loan in as few as 48 hours (in some cases – particularly if you provide all of the necessary paperwork).

Disadvantages Of Bridge Loans

The one disadvantage of a bridge loan is the higher interest rate. For this reason you would not want to extend the loan out as long as possible. Instead you should pay it off as quickly as possible and finance the project with a regular mortgage that has a much lower interest rate.

Something else that you may want to watch out for is your own ability to pay. With the higher interest rate on a bridge loan, you need to be sure that you can afford to make the payments on the bridge loan and on any other debt that you have at the same time. Remember that your old piece of property may not sell as quickly as you would like. Don't let it bind you financially or jeopardize your credit rating (or property) if you cannot afford it.

Make sure that you shop around for the best terms on both the bridge and your permanent loans. The lowest interest rates on a commercial loan do not necessarily represent the best deal so you will want to analyze the deal carefully.