Are you thinking about financing your business with a bridge loan? Not all business loans are the same. There are many different types of loans available for businesses. In addition to Small Business Administration (SBA) loans, there are bridge loans. Here are six things you need to know about bridge loans.
6 Things You Need to Know About Bridge Loans
#1) Used to Bridge Gaps in Financing
Bridge loans are used to bridge gaps in financing, hence their name. If you’re planning to secure a different and more permanent form of financing in the near future, you may want to use a bridge loan to keep your business afloat during this transitional period. You can use the bridge loan to cover some of your business’s expenses until you secure this additional form of financing.
#2) Short Term
Bridge loans have a short term. That’s one of their defining characteristics. Some bridge loans have a term of just one or two months, whereas others have a term of one year. Regardless, bridge loans have a shorter term than other types of business loans.
#3) Commonly Used in Real Estate
Many real estate developers and investors use bridge loans. It allows them to purchase new homes while awaiting the sale of their existing homes. Real estate developers and investors may take out a bridge loan to cover the closing costs on a new home, and after selling one of their existing homes, they’ll use that money to pay off the bridge loan.
#4) Offered By Banks and Alternative Lenders
Some entrepreneurs assume that bridge loans are only available at banks, but this isn’t the case. You can apply for a bridge loan at various banks as well as alternative lenders. Some banks and alternative lenders offer better interest rates than others.
#5) Thorough Application Process
Bridge loans have a thorough application process. Depending on the lender, you may have to provide financial documents such as income verification, credit reports and property appraisals. However, due to the time-sensitive nature of bridge loans, lenders may expedite the approval process.
#6) Influenced By LTV Ratio
You can’t ignore the loan-to-value (LTV) ratio when applying for a bridge loan. It represents the amount of the bridge loan relative to the value of the collateral with which the loan is secured. The lower the LTV ratio, the more favorable the terms of the bridge loan will be for you, the borrower.
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This insightful article from Intrepid Executive Group provides a clear and concise overview of crucial aspects related to bridge loans, offering valuable information for those seeking a deeper understanding of this financial tool. The well-structured content makes it an excellent resource for anyone navigating the complexities of bridge financing.
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