If you want to get a bridging loan while waiting for a larger loan, you will have to consider other factors that may affect your business in the long run.
Purpose: If you’re an entrepreneur looking for an interim financing, bridging loan can help you cover the costs of urgent expenses. Small to medium businesses use bridge loans when it runs out of cash while waiting for equity financing. Others use it to fund its operations while waiting for investors to save its distressed company. Some opt for this type of loan prior to acquisition. It is often approved quickly with little financial documentation. But take note that it is often associated with higher interest rates than traditional financing. Some lenders require collateral.
Interest rate: How much would you pay for borrowing? Check the total amount of debt plus its interest rate and consider if the cost is worth it. You can compare the interest rates with other bridge loan financing companies and choose the cheapest. Take note of associated fees and charges. Don’t be deceived by some lenders advertising extremely low fees. Remember that it may appear to have low interest rates but when you compute it with other fees, you will be paying more than what you actually thought you would. Talk to the loan officers and ensure that you can get a ballpark of the total cost of the loan.
Loan Term: Since it is an interim loan, you have to pay it within a shorter period of time compared to most types of loans. While some lenders may allow you to negotiate on the loan terms, most of bridge loans are fixed term. Ask your lender for any pre-payment charges in case you decide to repay them earlier and late fees when you fail to pay on the due date. Ask about the effects of delayed payments on interest rates. Compute the specific amount you have to pay every month against the specified repayment schedule. You can also add its fixed or floating interest rate, depending on your loan terms.
Is it wise to use bridging loans?
Yes, if you need money quickly and you think you have the capacity to pay it back within a short period of time. But, if you will invest it on long-term assets that would not yield profits immediately, you can choose other types of loans.
Key information to get from bridging loan lenders
When you are asking for information about a bridge loan, it should include a summary of the following:
- interest free period (if any)
- interest rate
- loan term
- other charges
If you need quick and easy cash, ALC Commercial can help you. We offer various types of business loans suited to all types of business owners. Whether you want an interim or bridging loan to finance your urgent needs while waiting for larger loan amount, or if you need a line of credit, we got you.
Contact us today and we shall help you find the best solutions to your business needs.
