Bridge Loans

By Author: Martin
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What Are Bridge Loans?
A bridge loan is a short-term loan attained by companies who cannot access loans from traditional banks. Bridge financing is for companies in need of working capital or other capital requirements in preparation for expansion or another financing event. Bridging funds are collateral-based and short term, for needs that may span a few months or up to a year.

How do Bridge Loans Work?
Since traditional financial institutions, like banks, are becoming increasingly reluctant to lend, corporations find it more and more difficult and time consuming to attain funding, hence why they turn to bridging lenders. Since bridge loans are short-term, borrowers tend to pay a relatively higher rate of interest amongst hefty amounts of administration costs, appraisal fees and other contract charges. Unfortunately, some bridging lenders try to take advantage of unsuspecting borrowers by charging unbelievably high interest rates which are considered risky. Hence, borrowers should be extremely cautious before proceeding with the plan to avoid being ripped off by unscrupulous lenders.
The main idea behind ...
... bridge loans is to help companies that are strapped for working capital. With this type of loan, businesses can expand operations and enhance their financial situation. Further, bridge loans also referred to as ‘swing loans’, ‘gap financing’ or ‘interim financing’ come in handy for companies with short-term needs. It helps corporations and businesses access additional working capital for growth or other financial obligations that need immediate intervention.
As the name suggests, short-term loan must be fulfilled within a year and this type of loan is usually backed by collateral such as inventory or real estate. When it comes to accrued interest, you can opt to pay monthly interest payments during the loan term or pay the entire interest at the date of maturity.
What Are the Benefits of Bridge Loans?
The biggest benefit of bridge loans is the fact that it’s short-term. Borrowers are not subjected to long-term structured loans like mortgages that can sometimes lead to repayment difficulties. Consequently, borrowers can chose to pay off the loan before or after the permanent financing are secure. It’s this repayment plan flexibility that many borrowers delight in.

Where Are Bridge Loans Available?
Interim financing is available in banks, financial institutions and bridging lenders. However, some businesses, companies and individuals have difficulties in meeting traditional borrowing requirements. Hence, they opt for bridging lenders, which are increasing by the day. Therefore, it is advisable to get a firm that is regulated by a provincial or national regulatory body.
This section of article was contributed by Bridging Finance Inc. sub-advisor for Sprott Asset Management LP's Sprott Bridging Income Fund LP.