The idea that bridge finance can only be used to buy or renovate real estate is a common misconception. In fact, businesses can use bridging loans for a variety of purposes.
Bridge Finance can come in handy when your business needs a quick cash injection. It can be used to help you meet short-term funding obligations and get a critical cash flow boost while you wait for longer-term funding to become available.
As with any business loan, you must meet the lender's eligibility criteria. You will also be asked about your business plan and exit strategy when applying for bridge funding.
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Let's take a look at the different types of bridging finance available today:
Closed Bridge Loans
A closed bridging loan has a fixed repayment date, which is usually a few months after receiving funding. Because the lender has a higher level of security regarding the repayment of the loan, closed-end bridging loans are usually more accessible.
Open Bridge Loans
Open bridging loans, on the other hand, have no fixed repayment date. This can make them more suitable for borrowers who are not sure when they will get the funds they need to pay back the loan. Because of this, the interest rates on open bridge loans tend to be higher.
First charge bridging loan
A first charge bridging loan is when the asset used as collateral (e.g. property) does not have another loan. For example, the borrower may own it directly because the mortgage has been repaid in full. Remember that if you default on the bridging loan, the lender can sell the asset.
Second bridge loan fee
As the name suggests, a bridging loan applies to a second fee when a loan is already in place for the asset that is being used as collateral, e.g. B. a mortgage.
Debt bridge financing
If you want to temporarily raise funds to cover short-term costs, you can apply for external bridge financing. If you choose to go down this route, you need to figure out exactly what interest you will pay on top of the repayments to avoid exacerbating financial challenges.
Equity bridge financing
With equity bridge financing, a venture capital company provides the company with capital in the form of a bridge financing round to support it in raising equity. The company may offer equity to the lending company in exchange for the funds.
IPO bridge financing
Companies can use bridge finance to help cover costs associated with going public, which can be expensive. The company uses the funds raised by the IPO to repay the bridging loan and grants the subscribers shares with a discount on the issue price to offset this.
Are you looking for short-term corporate finance? In that case, a bridging loan could be exactly what you are looking for. If the bridging funding isn't entirely right, you may be able to secure another type of funding, such as: B. a startup loan, revolving credit facility, or bill financing.
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