If a business is not in a place financially to obtain funding, but still needs access to funds for a project or for operations, they might apply for a bridge loan. As the name implies, these loans are designed to be very short term and are there to help small businesses with immediate access to funds.
Because of the speed and requirements of traditional lending agencies, there arose a need for funding that was available in a much more condensed time frame with fewer requirements. Bridge loans fill this need. They are not only very flexible, but the terms of the loan are very short, giving both the borrower and the lender exactly what they need.
Typically, small businesses will utilize a bridge loan to cover the expenses that are incurred while they are waiting for the greater funding of a traditional loan to come through. For real estate, this might include the fees, assessment and appraisals of various properties that are in the pipeline for development. These loans allow for the maintenance of cash flow while larger funding is still in process. Some businesses have used these loans to cover rent, payroll or other operations expenses to maintain their operations while other funding is pending.
The ease of accessibility of these loans does not come without a cost, however, as the interest rates are typically much larger than that of a traditional loan. This only makes sense when you consider the level of risk that a lender is undertaking by providing the funding in such a matter. There is not much security outside of the value of the property. In this way, bridge loans are very similar to hard money loans, although their intended purpose is different.
One of the strategies that many borrowers employ is actually to roll the cost of the bridge loan into the overall cost of the larger traditional loan. This allows the borrower to pay back the loan immediately upon the receipt of the larger loan. This, essentially, rolls both loans into one payment and is a fairly standard tactic. Most lenders understand the need to do that and are willing to work with borrowers to ensure a smooth transition. If you are a borrower that is in bind while waiting for funding, make sure that you explore all of the options that are available to you. Your lender might even have some ideas about how you can creative leverage these loans.
Are there any other uses for a bridge loan other than real estate?
Yes, absolutely. Many operating businesses use bridge loans to cover the operational costs of doing business while they are waiting on large contracts or massive amounts of funding. While this could be a risky venture if financing falls through, it is a safe assumption that businesses who are going to use the quick funds of a loan of this type can count on their source of funding to not fail. At this point, the elevated interest payments are a much more acceptable loss than having to shut down operations.
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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