The most well-known type of bridge loan is used by individuals to finance closing on a home (or site of a future home) while waiting for a long-term mortgage to be approved. Business bridge loans work the same way and can be used for a multitude of business purposes.
What is a Business Bridge Loan?
A business bridge loan is a short-term loan used to “bridge” the gap between current and future financial circumstances. In other words, if your business needs funds now, for whatever purpose, and won’t have the capital to meet that purpose until a future date, a bridge loan could be a solution.
What Can a Bridge Loan Be Used For?
Like a personal bridge loan, a business bridge loan can be used for real estate purposes — to move your company or renovate an existing commercial property for better function or ROI.
Your business could also use a bridge loan to:
- Cover bills during seasonal or transitional lows — during your off-season or when clients are late in payment
- Support rapid expansion — take advantage of time-sensitive opportunities, hire staff needed to ramp up operations, or purchase equipment needed to handle higher volumes
- Get a cash infusion in times of transition — such as during mergers and acquisitions, restructurings, or while waiting for other debt or equity financing to close
Getting a Bridge Loan from a Traditional Lender
Getting a bridge loan from a traditional bank can be difficult. Because banks regard these loans as more risky than long-term loans, they set up stringent requirements for approval. Your business will need to have exceptional performance history and strong financial ratios. Your loan will generally require collateral as well, such as property or inventory.
But it’s also important to understand that the pay-off period for these loans is short, generally less than a year, and repayment terms tend to be inflexible. This can pose a risk for your business. What if your circumstances do not change in the time frame you’re expecting? If your restructuring takes additional time, your customers have payment problems or your long-term debt or equity financing is delayed, this could pose risks to your business and lending relationship.
Alternative Sources for Bridge Loans
Despite these risks, many businesses take out bridge loans. This is because there are times when circumstances can make it difficult to grow or stabilize your company without quick access to credit. Fortunately, alternative lenders offer options that may be suited to your company’s needs and can function similarly to a bridge loan.
Asset-based lending (ABL) is one of these options. Experienced ABL lenders are accustomed to working closely with companies who are experiencing financial challenges. And non-bank ABL lenders can be more agile than large traditional banks, providing approvals and funds quickly and efficiently.
When businesses experience circumstances that traditional banks cannot handle, ABL can enable them to obtain funding by using valuable assets like equipment, inventory and accounts receivable. And, ABL lines of credit offer flexible payment and re-borrowing options that can help your business respond productively to both your challenges and opportunities.
At Gibraltar, we specialize in providing credit to transitional middle-market companies who are looking towards a successful future. Talk to a member of Gibraltar’s professional and experienced sales team to learn more.