5 Things to Consider When Seeking Bridge Financing

Do you need quick access to capital to facilitate your business’s operations? It can take over a month to secure long-term financing, such as a traditional business loan or line of credit. Bridge financing, however, can provide your business with intermediary capital in the meantime. It’s known as “bridge financing” because it bridges the gap for long-term financing. Also known as bridge funding, it’s commonly used in commercial real estate transactions. Below are five things to consider when seeking bridge financing.

5 Things to Consider When Seeking Bridge Financing

#1) Amount of Capital Needed

You should consider the amount of capital your business needs when seeking bridge financing. Bridge financing consists of short-term loans that, as previously mentioned, are designed to bridge the gap for long-term financing. Therefore, the amount of a bridge loan needs to reflect your business’s immediate financing needs.

#2) Interest Rate

Bridge financing is classified as debt financing. It involves borrowing money from a lender. Like with other types of loans, the lender will charge interest. Interest rates for bridge loans can vary. Because of their short approval time — it’s faster to get approved for a bridge loan than a traditional bank loan — they typically have higher interest rates. But there are many different factors that affect interest rates. If you’re going to use a bridge loan to finance your business, you need to consider the interest rate.

#3) Secured vs Unsecured

There are secured bridge loans, and there are unsecured bridge loans. Secured bridge loans are backed by collateral. The lender will require you to place assets up as collateral. For commercial real estate transactions, you can typically use real property that you currently own. Unsecured bridge loans don’t require collateral.

#4) Fees

There are fees associated with bride financing. When applying for a bridge loan, the lender may require you to pay closing costs, administrative fees, notary fees and other related fees. Aside from the closing costs, most of these fees are relatively inexpensive. Nonetheless, you should still consider the fees when seeking bridge financing.

#5) DTI Ratio

You should consider your debt-to-income (DTI) ratio when seeking bridge financing. This creditworthiness metric represents your debt relative to your income. The lower your DTI ratio, the better. Lenders will often check applicants’ DTI ratios to determine whether they are suitable candidates for a bridge loan. With a low DTI ratio, you’ll have an easier time getting approved for a bridge loan.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.