What Is a Bridge Loan & How to Use It

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is a Bridge Loan?
How Are They Different From Traditional Loans?
How Does Bridge Lending Work?
Speed of funding: Businesses typically seek these types of loans because they have an urgent funding need. So, spread your net a bit wider and check a variety of lenders to find one that can meet your timeline. Incentives to prepay: This is a short-term form of funding — in other words, a temporary loan. So, ask lenders if you can receive a prepayment discount or otherwise save money by paying it off early.
What Are the Pros and Cons of Using Bridge Loans?
Pros
Businesses can get cash fast for immediate needs. To facilitate the fast need for funds, the application, underwriting and funding process is typically streamlined. Money can be spent in flexible ways.
Cons
Interest rates are higher than many other loan types. This is a secured loan with property serving as collateral. They often have origination fees and may also include other fees.
What Are Common Uses for Bridge Loans?
Delay in Customer Payment
Expanding Your Business
Insurance Claims
Buying Inventory
What Are the Alternatives to Using a Bridge Loan?
Business line of credit: Also called a commercial line of credit, this type of loan gives a business access to funding where interest is charged on the outstanding balance, not on the amount that’s available to use. Businesses can use the funds as needed and repay them in a revolving manner as long as they don’t exceed the approved limit. SBA loans: These are loans guaranteed by the U.S. Small Business Administration (SBA) and offered by certain lenders. Loan programs are available up to $5 million to cover a wide range of business needs. Invoice factoring: With invoice factoring, businesses can use their unpaid customer invoices as collateral. This helps B2B companies to manage their cash flow with the factoring company, which is then responsible for collecting the outstanding amount.
The Takeaway
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About the Author
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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