Why Bridging Finance Is a Better Option than Other Lending Arrangements

Bridging finance is a type of loan that is used when there is an anticipation of an influx of cash in a short period of time, but money is needed to finance a project right now.

With this arrangement, borrowers can obtain the money needed, launch the project, then repay the debt as soon as the anticipated cash is available. This type of financing offers several advantages that are very hard to come by with any other type of loan.

Quick and Easy

Bridging loans are provided with a relatively simple application and approval process. Business owners can often navigate the entire process in 24 hours or less. What this means is less red tape to deal with, allowing you to get moving on your project sooner than later. For example, if your company is putting together an initial public offering or IPO, securing the cash to complete the launch now rather than a week or so down the road could have a significant impact on the success of that launch.

Competitive Rates

Owing to the short-term nature of bridging financing, lenders will often extend competitive interest rates as part of the loan terms and conditions. In addition, some of the usual fees and charges may also be waived, assuming that the lender is convinced that the loan will be repaid in a short period of time. Since this type of loan can be structured to include collateral, a borrower who can pledge an acceptable asset for that short period may be able to lock in even better interest rates.

Flexible Repayment Terms

Depending on how the bridge loan is structured, there may be no need to tender monthly installment payments. Some loans can be configured to require periodic payments on the interest and then provide one or two balloon payments during the life of the loan. This arrangement can work very well, since it keeps out of pocket expenses very low while you wait for that anticipated influx of cash to settle the total amount of the loan.

Bridging Buys Time

Even if that anticipated cash flow takes a little longer than you anticipated, the bridging loan buys enough time to work out some other type of financial arrangements. There is the option of selling other assets to raise cash to settle the amount due, or possibly rolling the remaining balance into some other type of loan arrangement. In fact, it’s not unusual for homeowners or business owners to secure a bridging loan with the intention of utilizing that loan until they can arrange more long-term financing.

As with most types of lending arrangements, bridging finance does present some degree of risk to the lender. This means the borrower has the responsibility of proving that he or she presents a reasonable risk in return for the benefits that the lender receives from the arrangement. Typically, a solid credit rating is a must in order to be approved and lock in the most competitive interest rates. In addition, pledging collateral, even the equity in a piece of property, will also help minimize risk to the lender and enhance the chances of being approved. Always approach the lender with a clear-cut plan for repayment, demonstrating that you have full confidence in your ability to honor the debt; a display of confidence may be just what you need to convince the lender and walk out with the loan amount and terms you wanted.

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This entry was posted on Thursday, March 22nd, 2012 at 8:35 am and is filed under Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.