Short term loans that are used until someone, or the company gets permanent financing or removes an existing obligation, is a Bridging Loan.
Loans of this type are short-term, up to one year, have relatively high interest rates, and are usually supported by several forms of collateral, such as real estate or inventory.
Bridging Loans are also known as temporary financing, gap financing, or swing loans.
Why is it like that...?.
This is because Bridging Loans are able to bridge the gap when funding is needed, but not yet available.
It must be understood, Bridging Loans provide direct cash flow, but come with high interest rates and usually require collateral.
What kind of business is using it ...?
Businesses turn to Bridging Loans usually when they are waiting for long-term financing, and need money to cover temporary costs. For example, there is a company conducting a round of equity funding that is expected to be closed in six months.
Thus, companies can choose to use a bridging loan to provide working capital to cover payroll, rent, utilities, inventory costs, and other costs until the funding round is passed.
For Bridging Loan loans are usually offered between 1-18 months, with loans being paid in full at the end of the term. Unlike other forms of loans, monthly interest is often included in the loan, meaning that no payments are made during the term of the loan.
Meanwhile, Bridging Finance can also be offered to almost all properties or land, and can be used for a number of different reasons. Its main functions are :
1. Buy property quickly, such as auction purchases.
2. Buy uninhabitable property.
3. Fund property recovery or conversion work
4. Prevention of repossession
5. Buy property below market value
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Next, before you decide to take the Bridging Loan, you must first consider the following things:
1. Total costs
When comparing products from different providers, always consider the total loan costs, not just the interest rate. People often pursue the lowest interest rates, but many lenders will charge large outflows, fund management fees and other hidden costs.
Then also always ask for details of the total cost of taking out the loan, before continuing. Because, this makes it easy to compare different providers.
2. Payment Methods
The main problem when taking a Bridging loan, is that you will not be able to repay the loan at the end of the term. Always consider how the loan will be paid in advance, and make sure the proposed exit is feasible.
If you plan to sell property, make sure the loan period gives you enough time to find buyers, and complete sales. And if you are forced to pursue fast sales, you can receive far less for your property than you want.
As a closing word, between which Bridging Loan & Bridging Finance, which one do you choose ...?. That choice depends on you. Because both are loans, meaning you are responsible for them. Have a good activity...