Bridge financing is an often-misunderstood funding option, but it is useful for a variety of situations. If you’re curious about how it works, just keep reading for an overview of bridge funding and what it can be used for.
As you may have guessed from the name, bridge financing acts as a way to fill the gap between financing sources. They are issued by private lenders (as opposed to traditional banks). Because they are meant to cover short-term funding needs, bridge loans typically last between six and 12 months. As covered on Investopedia, this type of financing is commonly used to fulfill working capital needs in the short term. Initial public offerings also frequently make use of bridge funding.
Securing a Bridge Loan
Property typically serves as collateral to secure a bridge loan. In other words, to obtain a bridge loan, borrowers need to be willing and able to use the equipment, vehicles, real estate, or other tangible assets to put the lender at ease. For example, a house flipper might use a house as collateral.
The Advantages of Bridge Financing
Bridge financing offers a number of unique advantages. One is their short approval time: Businesspeople are often pleased to hear that bridge financing can provide access to funds in a matter of days. That makes bridge funding ideal when time is of the essence, especially because traditional banks may take months to provide funding.
Additionally, bridge loans provide a high amount of flexibility. They can be used in a number of situations, such as when a landlord needs to cover a gap between tenants or when a house flipper needs to quickly close in a property. In other words, they are a way to both shield oneself from downturns and pounce on opportunities.
For more information on financing and additional business topics, take a look at Affinity Capital Funding’s other blog posts today!