Unlock Immediate Business Capital with Bridge Financing
Stan Prokop
Canadian Business Financing | Cash Flow Financing | Asset Based Lending | Equipment Finance | Lender Financing | Purchase Order Financing | Acquisition Financing | SAAS Financing | Acquisition Financing
Bridge Loan: Financing Solutions
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WHAT IS A BRIDGE LOAN
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Short-term financing needs often drive business Finance needs.
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That kind of ‘specialized financing‘ via bridge loans can sometimes best be described as ‘out of the box‘ strategies that are usually not in traditional bank financing.
Bridge loan terms typically range from 90 days to 12 months and require a strong credit score and a firm sale agreement for the existing home.
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Bridge loans are a form of business finance with quick access. They typically come with higher interest rates and offer collateral in the form of business assets or commercial real estate by the borrower.
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Businesses use this type of financing until they find more permanent funding to settle an existing obligation to a lender or, in some cases, for government arrears.
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Opening Paragraph: When cash flow threatens to halt your business operations, bridge loans emerge as a crucial lifeline. As a former commercial lender who's facilitated over 100 bridge financing deals, I've witnessed firsthand how these short-term funding solutions can transform challenging situations into opportunities for growth.
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THE CASH FLOW GAP
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Urgent business expenses won't wait for traditional financing approval. Every day without adequate funding means missed opportunities, strained vendor relationships, and potential business setbacks. Bridge loans provide the rapid financial injection needed to maintain operations while securing long-term financing solutions.
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HOW BRIDGE LOANS WORK
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Bridge loans are short-term financing designed to bridge the gap between two transactions, most commonly in commercial business loan financing and real estate.
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HOW CAN BRIDGE LOANS HELP YOUR BUSINESS
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So, how can the owner/financial manager address the need for a short-term or bridge loan that solves immediate problems via a funding process that works as an alternative to a conventional loan?
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Ample cash savings are important to qualify for bridge loans, as this financial resource can fill the gap during the transition period.
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Those bridge loan solutions are short-term, typically between 3 and 12 months. They can be used to refinance debt and assist in growing sales when non-traditional financing sources are unavailable.
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BRIDGE LOANS VS TRADITIONAL LOANS
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How, then, do we identify the providers of this type of financing? It’s rarely a ‘check the Yellow Pages’ solution!
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While Canadian banks and traditional lenders drive traditional financing, they often require specific documentation, such as a Sale Agreement, which can be a hurdle for homeowners without a firm selling date.
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In contrast, bridge loans offer more flexibility and are typically provided by alternative lenders, making them a viable option for those who do not meet traditional lenders' stringent requirements.
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We suppose you might be able to call the government BIL/CSBF program, which specializes in finance. Still, it is undoubtedly not short-term and has monthly payments under a term loan structure …
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In effect, it’s a term loan via long-term financing with significant government guarantees to the financial institution providing that financing, the bank.
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A typical loan term is 3-5 years, and authorized lenders charge a one-time 2% fee when approved for this type of long-term funding. Unlike a higher interest rate via alternative financiers, this type of loan is very competitive and offered by most banks and tied to the prime rate.
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WHO OFFERS BRIDGE LOANS? WILL THIS FINANCING WORK FOR YOUR BUSINESS?
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So, while the bank highly prizes the guarantee, this clearly is not a specialized finance program that meets the needs of short-term financing, which often revolves around working capital and cash flow needs via short-term loans with a higher interest rate from other lenders.
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Some situations are difficult and might even require what’s known as ‘ debtor in possession financing, ‘aka ‘ DIP. ‘
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This allows larger firms with challenges to operate while making proposals or arrangements with creditors.
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This ‘last stand’ type of financing is not where you want to be, but many medium-sized and larger companies emerge successfully from this process.
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Lenders offer bridge financing to help homeowners transition between properties. Various lenders, including both central banks and smaller institutions, provide these loans.
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Consulting with a mortgage broker can help explore options and understand the specific conditions under which lenders provide this type of short-term loan, differentiating between A-lenders, B-lenders, and private lenders based on lending criteria and associated costs.
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What are better options for releasing cash flow and fixing working capital shortages with a repayment method that works for your business?
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The answer?? Your assets!? Gaining liquidity from unencumbered assets is, in many cases, the final emergency fix. Longer-term assets, such as equipment, real estate, etc, can employ the ‘ sale leaseback ‘ scenario to release cash while still using and ultimately owning those assets again.
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HOW LONG DOES IT TAKE TO GET A BRIDGE LOAN - DO YOU QUALIFY FOR A BRIDGE FUNDING SOLUTION?
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Bridge loans typically have a faster application process with faster closing dates. However, financing fees and bridge loan rates and costs are higher than the funding provided by traditional financial institutions.
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A firm sale agreement is necessary to obtain a bridge loan, as it serves as a security measure for lenders to ensure that a borrower has a legitimate process for selling their existing property before purchasing a new one.
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Loan terms are typically one year, with provisions for extension and repayment based on a fixed payoff date based on the company’s specific needs.
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As we have mentioned, this type of ‘gap financing’ comes with higher finance and closing costs/ legal fees than traditional loans.
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That’s asset monetization at its best.
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Almost any asset can be refinanced, including equipment, tech assets, rolling stock, real estate, etc. The financing paperwork is usually accommodated by a bridge loan, lease, or mortgage. In some instances, appraisals might be required, as they protect both the lender and the company.
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BRIDGE FINANCING COSTS AND FEES
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The costs and fees associated with bridge financing can vary depending on the lender and specific loan terms. Common expenses include admin fees, and appraisal fees if necessary.
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These costs reflect the convenience and speed of obtaining bridge financing, which often has higher interest rates than traditional loans.
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ALTERNATIVE TO BRIDGE FINANCING / GAP FINANCING
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Firms that need short-term financing to bridge the gap are often required to do so by firms that are in the process of exiting traditional bank financing, perhaps after they have been placed in ‘Special Loans’.
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In effect, the bank relationship is over. Leveraging the equity in your current home can be a significant benefit of bridge loans, as this equity can be utilized towards the down payment for a new home, allowing homeowners to transition seamlessly between properties without immediate sales pressure.
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Asset-based ‘ ABL ‘ loans are the perfect solution if your company is in ‘Special Loans‘. Spoiler alert - it won’t make you feel that ‘special.’
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ADVANTAGES OF SHORT TERM BUSINESS FINANCE SOLUTIONS / TYPES OF BRIDGE LOANS
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Bridge loans are not limited to real estate transactions; they can also serve various business purposes:
领英推荐
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By understanding the different types of bridge loans and their applications, businesses and individuals can make informed decisions to effectively meet their short-term financing needs.
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ADVANTAGES OF SHORT TERM BUSINESS FINANCE SOLUTIONS? / TYPES OF BRIDGE LOANS
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Inventory Loans
SR&ED bridge loans**? - Click here for more info on SRED LOANS**
Real Estate Bridge Loans / Construction Loan Financing—A real estate bridge loan is a common use of gap financing. If traditional banks or A-lenders are not viable options, individuals without a firm selling date for their current home may need to consider a private lender. While private lenders offer a solution, they may charge higher interest rates and fees than other lending options.
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3 Uncommon Takes on Bridge Financing
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KEY TAKEAWAYS
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CONCLUSION - IS A BRIDGE LOAN RIGHT FOR YOUR BUSINESS
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Short-term financing in Canada is specialized... niche financing. It requires speed, efficiency, expertise in cost and structuring, etc.
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Call 7 Park Avenue Financial,? a trusted, credible, and experienced Canadian business financing advisor who can assist you in understanding the pros and cons of bridge loans and specialized financing needs and how a bridge loan works for your needs to cover expenses and commitments and meet current obligations.
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FAQ: FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK /? MORE INFORMATION
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A bridging loan provides immediate cash flow to meet current obligations, particularly in real estate transactions, by facilitating liquidity during home purchases and related expenses.
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This type of interim financing provides a solution until more permanent financing is available - Bridge loans are often customized to a company’s unique needs.
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‘Swing loans’ is another term for bridge finance solutions that describe a good option that carries more risk for a lender but allows a borrower to meet current obligations.
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What are pros and cons of bridge loans? What are Bridge Loan Costs?
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The advantages and disadvantages of bridge loan solutions include faster access to cash flow solutions, flexibility around tailored solutions, and a shortened approval and underwriting process.
Cons and potential disadvantages include higher rates, down payment requirements in some situations, and the need to provide some form of business collateral. Additionally, interest payments can vary significantly based on the lender's policies.
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Some lenders require monthly interest payments, while others may allow lump-sum payments at the end of the loan term or subtract the interest from the total loan amount at closing.
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How quickly can bridge loan funding be accessed?
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What makes bridge loans different from traditional business loans?
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How can bridge financing protect business opportunities?
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What collateral options are accepted for bridge loans?
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How flexible are bridge loan repayment terms?
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What common business situations warrant bridge financing?
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How do bridge loans affect future financing options?
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What documentation is typically required?
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How are bridge loan interest rates calculated?
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What happens if the exit strategy changes?
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What distinguishes successful bridge loan applications?
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How does the bridge loan underwriting process work?
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What are the hidden benefits of bridge financing?
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' Canadian Business Financing With The Intelligent Use Of Experience '
?STAN PROKOP 7 Park Avenue Financial/Copyright/2024
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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil