What is Bridging Finance?
Once you understand what the term, “financial bridging” means, it’s easy to understand how it got its name. The purpose of a bridge or loan bridge is to provide short-term cash for real estate transactions until permanent financing is secured.
Everyone knows it’s difficult for the time of sale of one property to coincide with the purchase of another property. A slight delay can wreak havoc on transactions and create obstacles that are difficult to overcome. Having to pay two mortgages, whether for residential or commercial purposes, for a long time can spell financial disaster. This is where financial assistance bridges.
The purpose of a loan bridge is to remove these financial constraints so that commercial transactions can continue. In the majority of situations, “financial bridging” provides additional funding so the company can continue to pay rent on existing commercial property while it is still on the market.
If you have developed a relationship with an institution, it is a good place to start. If not, it’s time to start looking for a lender with which you feel comfortable. Go through the loan bridge pre-approval process to see how many loans you qualify for. With pre-approval in hand, you can act quickly after the desired commercial property becomes available.
One of the general requirements for obtaining a bridging loan is collateral. Most applicants will be asked to secure a loan with a significant collateral. Examples of collateral include heavy machinery, business equipment, inventory, commercial or other residential property owned by or the applicant and even property involved in the purchase process.
Having a large credit history, both for your business and your personal life, and a solid relationship with a lender always helps when applying for a bridging loan. There are even situations where a bridge loan is approved with only a signature – no collateral required!
Bridging Loans and Bridging Finance
Even with good credit, however, expect to pay a slightly higher interest rate for this type of short-term bridge loan. One-half of a percent or more is typical. The maximum length of a loan bridge is usually twenty-four months. Creditors must make some money on the deal and a higher interest rate is where the opportunity lies. Other factors are also involved in determining the interest rate. The credit risk is calculated by the applicant, the value of the item used as collateral and the total loan time required for all factors into the equation, too.
If you think applying for a bridge loan makes sense for your situation, work with a US commercial loan organization that specializes in this type of loan. They will help with all the necessary steps and they will offer advice along the way. Don’t be afraid to shop around for better prices and terms! The commercial loan market is very competitive and it’s for your benefit to do business with a lender who will work with you and not against you.