What is a Bridge Loan?
A bridge loan is a loan to cover the time between your expenditure of funds and your receipt of funds. Life never gives us what we need at the time we need it when it comes to business.
Bridge loans are always short term or are intended to be short term even though they often extend beyond what was initially anticipated.
It's easy to understand if you relate it to a house you are selling, but it never sells before you find the house that you want to buy. But what if you need the money from the sale of your current home in order to pay for the new house?
The sale of your existing house is expected in 60 days, but you are now under contract to close on the purchase of your new house in 20 days. How do you “BRIDGE THE GAP?”
Note that another term for this type of loan is also a Gap Loan. They mean the same thing, however.
Our bridge loans will close on the date of your purchase of the new house and allow you to complete the purchase. At the same time, we will also take a mortgage on your current home that is for sale. When your current house sells, we will get paid off and it will be just like they both happened at the same time.
These loans are easy to evaluate and easy to approve for us, and I have done many, many of these to accommodate the way in which life works.
Our bridge loans, however, are focused on commercial transactions. What if you have a contract to sell your goods or services and the buyer pays each 30 or 45 days? How do you ‘BRIDGE THE GAP?”
Are you noting a trend here? A bridge loan is merely a technique to cover a timing disparity between spending and receiving funds. In this case, you have produced your widgets and paid the labor and materials expenses. You are now officially short of cash and depend on receiving the sales proceeds from your buyer in order to start your next order or pay your other expenses.
If every customer you have operates in the same way, it is not long before you look like a bank, extending loans to your customers for as many days as they care to take when paying you.
Putting a “lien” on your accounts receivable is definitely within the definition of “BRIDGE LENDING” as it covers the time period between the expenditure of funds and the receipt of funds. While this type of loan is not difficult, it does take a bit more paperwork and some additional formalities so while it may be approved very fast, it may not fund for a few days thereafter.
Bridge lending is one of the staples of an alternative lender’s loan options. And LauchPad is certainly one of the best at it as we have had decades of experience at structuring these loans to meet the situation and to close fast.
The biggest advantage of a bridge loan is that once you have a commitment from LaunchPad, you can then go about your normal business life and produce and sell without the monetary stress that goes with the normal flow of funds. You will know, as the result of specifying the terms of your bridge loan commitment, what you can and cannot do if you are depending on the bridge loan to cover this time difference.
The biggest disadvantage of a bridge loan is that because the loan will be outstanding for a short period of time, no lender will make a loan that will earn him a small amount of money. Therefore, as the result, the interest rates may seem high, but its only for a short period of time.
You will get the best rates if your arrangement with any accounts receivable lender is for a period of time. A one-time loan against an account receivable will be costly as you will also have to pay for the legal fees to prepare the documents, and an origination fee on this loan. If, however, you contract to keep the funding in place for all of your receivables for 6 months or a year, these costs will diminish per month over time.
LaunchPad is proud to offer these types of loan to businesses that produce products or services for sale. We understand how to get this done quickly and efficiently for you.
Stephen D. Replin, CEO
LaunchPad Café, Ltd.