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Business Bridge Loan: Fill the Pre-Funding Gap

What if Hollywood made a movie about a business owner in need of immediate funds? In the opening scene, we see a business owner negotiating for some long-term financing or investment that will move the company forward. The deal is nearly finalized, just a few more details to iron out. The hero comes away from the negotiations more confident than ever about the company’s growth and future.

But he learns that it’s going to take a while – probably several months – before the funds actually come through. In the meantime, there are bills to pay and obligations to meet. For people looking (maybe even scrambling) for cash to pay their business’s bills while they wait for the deal to close, a bridge loan is an option worth exploring.

A bridge loan — to the rescue

Next scene: Business Owner, hunched over a calculator, sits in his office with his accountant. “How are we going to get by until that money arrives?” he asks.

“Two words: Bridge. Loan,” the accountant says. She goes on to explain that a bridge loan will provide immediate cash flow and allow them to meet their current obligations.

“It’s a way to get from ‘here’ to ‘there,’” she smiles. “The best place to look for commercial bridge loan financing is usually online. And quite a few of those online lenders will make the funds available without a credit check. In general, the application is simple. Maybe just a page or two. And it’s possible to get the money within days.”

He brightens. Leans forward. Listens closely. Thinks he might be falling in love – with a bridge loan.

“Bear in mind,” she continues, “that a bridge loan is meant to be an interim solution. And because of that, the terms usually range from just 6 months to a year. Generally, there’s no prepayment penalty. That’s always a plus. But expect the interest rate on this type of loan to be higher.” That last part doesn’t surprise him.

“Tell me more,” he says.

Different types of bridge loans

She goes on to explain the different types of commercial bridge loan financing, starting with the most common type: hard-money lending – where lenders make loans based on the amount of money the business has available. For many hard-money-lenders, cash-flow – not credit rating – is the key consideration.

“There are other types of bridge-loans, too,” she says, segueing into a brief description of collateral-based lending, accounts-payable lending, inventory lending, vendor lending, and real-estate lending.

He appreciates the overview to this complex topic. But at the same time, he realizes there are more things he will need to ask and learn in order to choose the bridge loan that will work best for their business.

Yet knowing what he now knows convinces him that with the right bridge loan, his company will be just fine in the short term. And with the larger financing that’s coming later, better-than-ever in the long run.

“Let’s do this,” he says to his trusted accountant.

In this final scene, as they share a collegial fist-bump, new background music swells. And the credits roll to a variation on the theme from Rocky.