What is Bridge Financing?
Bridge Financing is funded by banks and non-bank lenders to corporations to facilitate any temporary funding needs that arise for the business, while a long-term financing solution is being secured. This business financing option is often referred to also as swing financing, or gap financing. It can be used for either within the midst of a Real Estate transaction to cover immediate and time sensitive expenses or for short-term Commercial Funding for businesses in need of interim liquidity.
Bridge Financing options can be paid down either via daily, weekly, and monthly payment frequencies during the term of product. This Business Financing option is typically paid off completely from the proceeds of the larger scale longer term financing product. If a Bridge Financing is not satisfied by the larger scale longer- term funding option, then the debt must be subordinated to the bigger and lengthier loan. Thus, Bridge Financing is the appropriate name for this business financing product since it serves as a bridge that carries a corporation through its short-term capital needs until the company’s desired long-term financing options have been fully secured.
What are the two main Bridge Financing Products that we focus on:
What companies could use Bridge Financing?
Bridge Financing can be used by for-profit U.S. Businesses that are eligible for long-term financing and are utilizing this product to cover any short term business expenses. These are usually corporations in business for longer than 3 years with a reported profit for the 2 most recent years. This Business Financing product may also be used by for-profit corporations that are on the cusp of being able to qualify for longer-term financing options. In this instance the Bridge Financing serves as access to capital markets on an as needed basis, until the corporation has officially crossed the threshold into being fully eligible and funded for longer-term financing products.
Our team is committed to helping your business grow and will guide you through the loan process each step of the way.
What are Commercial Bridge Loans?
Commercial Bridge Loans are a very specific type of Bridge Financing. As the name implies, Commercial Bridge Loans are funded by banks and non-bank lenders to U.S for-profit corporations specifically to be used to “bridge the gap” between a company’s current need for liquid capital and the long-term financing solution that is in the works of being funded to the business.
Considering Commercial Bridge Loans only describes how a borrower uses the loan, rather than describing any specific characteristics about the loan itself or its terms. Technically, therefore, many types of business loans could be a Commercial Bridge Loan, as long as the corporation uses it in a particular way, to maintain the title of a “bridge”.
A Commercial Bridge Loan is a short-term loan used until the company has secured permanent financing. From there the company typically uses a portion of the long-term financing to remove and pay off the Bridge Loan or worst case the company would have the existing Bridge Loan obligation subordinate to the newer longer term debt.. Bridge loans are short term, ranging somewhere between a few months in term to up to one year. This Business Financing product does come with relatively higher interest rates in comparison to some other debt options on the market. These short term loans are typically secured by some form of collateral, such as corporate owned real estate or the businesses current inventory. Bridge loans are usually fast-to-fund, and can aid a corporation with meeting its current obligations. By providing the immediate short term capital needed while a longer term Business Financing option is being finalized.
Commercial Bridge Loans can be best used by for-profit U.S. based companies that meet all of the qualifications for long-term financing and have already received an approved term sheet offer. The Commercial Bridge Financing capital could be used in the interim while the closing process of the longer term financing is taking place.
Another group of companies that could use
Commercial Bridge Loans are companies on the cusp on being able to be approved for long term financing. The funds could be used as an access to the capital markets while the business is working it’s way up to being eligible for better financing options.
Commercial Bridge Loans are also known by such names like “gap financing” or “swing loans”. Due to the fact that this Business Financing product sole goal is to “Bridge” the gap during times when long-term financing is being secured but is not yet available. Since some of the best long-term Business Financing options on the low end can take 5 to 10 business days to close.
Commercial Bridge Loans are here to serve corporations’ need for immediate capital. This Business Financing option can be used to satisfy the short-term expenditures that are crucial towards either maintaining or growing the business.
Traditionally speaking in order for a Commercial Bridge Loan option to work for a corporation, the business must already be approved for the larger scale long-term funding. The approval for the funding could be coming from the same lender providing the Bridge Loan or a pre-approval from a reputable long-term lender. The corporation’s financials and background will need to be thoroughly researched. In order to make certain the corporation does qualify for the longer term debt that is being offered. Most long-term Commercial Bridge Loan lenders if not all will also take a deeper dive into the lender to make certain the long-term financing will go through, if long-term funder is not familiar to the funder providing the Commercial Bridge Loan.
Expect the lender considering the corporation for this short term Business Financing to take into account if the corporation can afford to carry the new Bridge Loan and that the new long-term funding can pay off the Bridge Loan and still leave the business with a decent portion of the new loan amount. Commercial Bridge Loan terms can range from a few months to up to one year. The loan payment frequencies can range from daily to weekly and even monthly payments.
Commercial Bridge Loan is a short-term financing option that is used by a company while it secures permanent long-term financing.
This Business Financing product is short term, with a few options maxing out up to one year in term.
Commercial Bridge Loans capital can be used for any immediate needs for capital that a business has while awaiting their longer term financing to be finalized.
Unlike other Bridge Financing products that cater to other areas like Real Estate . Commercial Bridge Loans are specifically designated for Corporations seeking liquidity for business purposes. Which is why although collateral may be required to secure a Commercial Bridge Loan, real estate is not a specific demand since it is not based on property values.
Once a corporation has gone through the painstaking process of being pre-approved for a long-term funding option. Applying for a short-term Commercial Bridge Loan is all the more easier. As a lot of the information on the corporation and its owner operators to qualify the business with a pre-approval for long-term funding. Which is more than enough information that is needed to be approved for a Bridge Loan.
Commercial Bridge Loans are only available to for-profit based businesses, operating within the U.S. and within non-restrictive industries like adult entertainment, tobacco or firearms sales.
A corporation seeking out a Commercial Bridge Loan option must showcase. The business not only can qualify for the Bridge Loan but the company truly does have the qualification standards to be approved for and funded the larger scale long-term loan. If not, the borrowing corporation will not have a means to pay off the Commercial Bridge Loan.
To qualify for this Business Financing product the applying corp needs to be reporting. A minimum of 3 years of time in business. With a minimum of 2 most recent years showcasing a profit. Once again this is needed not just for the Commercial Bridge Loan. This is to make certain the business does have the long-term funding option secured.
Please expect for the corporation to be required to supply 3 most recent years of full business and personal financial documents as well as a minimum of 12 months of the company’s revenue records.
In order to qualify for this Business Financing product the owners/principals must have a great personal score.
Also the corporation needs to also have a good Business Credit Score. Since Business Credit Scores can range from 0 points to up to 100 points. The closer to the 100 point mark for the applying corporation, the better off the business may be in the final underwriting.
In order to qualify for this Business Financing product companies need to be prepared to have to furnish a lot of personal and corporate information.
Although businesses can use Bridge Financing loans for day to day business expenses. Most lenders will still want the company to detail its use of the funding. Any time businesses take on additional debt especially in the midst of seeking out long term financing. Lenders will take a look at the use of funds to make sure the funding is warranted.
With this Business Financing product the full funded amount is limited in order to make certain that the business is not overleveraging themselves.
Since collateral is typically a prerequisite for this product companies will be required to verify and validate the collateral the corporation is trying to pledge.
A debt schedule will be requested prior to funding. Since the long-term funding will be paying off any Bridge Financing and other obligations. Business will be required to provide an accurate debt schedule in order to make certain. All debts can be paid off when the larger long-term funding goes into place.
What are Working Capital Advances?
A Working Capital Advance (also known as a Business Capital Advances or a Merchant Cash Advance). This is a Business Financing product that is funded by non-banks or alternative financing funders. Working Capital Advances are not considered loans, instead they are simply advances of capital against the companies future revenue deposits and or receivables. Working Capital Advances are generally shorter in term, they are not based on standard APR rates instead they are quoted in the terms of the Factor rate. Factor rates are a general way to display the cost of capital for a specific amount of borrowed capital. Essentially to figure out the factor rate of an offer simply divide the full payback amount by the amount of capital that is being awarded. In most cases, these short-term working capital advances have a term of between three and twelve months. The payment terms for Working Capital Advances are generally either daily payments or weekly at best.
Working Capital Advances are taken out to finance the day-to-day operations of a business, rather than a financing option that is used to grow a business through acquisition or buy long-term assets. These loans cover short-term operational needs such as payroll, rent, and debt payments. Whereas Bridge Financing is used as a short-term funding used for temporary purposes while longer-term financing is being secured. Corporations will typically use Working Capital Advances as transitional capital, while they are building up their personal and business profiles in order to qualify for better longer term financing down the road.
Some examples of why corporations have been known to use Working Capital Advances including but are not limited to: access to capital while they are under the 3 year time in business requirement for longer-term financing, receiving capital while the owners and the corporation is building up the credit scores needed for longer term financing, obtaining working capital while the corporation is not reporting a profit as of yet. Which is a requirement to be awarded long-term financing options. Approval Amounts for Working Capital Advances start as low as $10,000 and can range as high as $500,000 to up $1,000,000 depending on the funder.
Typically companies choose to use Working Capital Advances for one of two major reasons.
Lack of Opportunities or Time Sensitive Capital needs::
The most common reason is a lack thereof of more viable and cheaper funding options being available to a business. Either due to the corporation or it’s owner/principals not being able to qualify for other business financing options or a combination of both the corporation and the owners. Basically companies that have to improve in stature before they can re-apply for other means of cheaper and longer in term Business Financing options. Are the largest group of businesses that utilize Working Capital Advances.
The least common of the reasons is the timing or urgency issue, businesses sometimes face.
There are businesses out there that can be approved for cheaper and longer term financing options. Yet the way that their business works sometimes great opportunities to turn a nice profit pop up at unforeseen times. While a traditional Business Financing option may be more cost effective, in many cases the process can be long and tedious and decisions on approval or decline may take as long as a few weeks to up to a month or two. For those businesses that need to be able to act quickly and seize certain highly profitable opportunities. Speedy financing beats our cheaper financing more often than not. Corporations seeking out Working Capital Advances can be fully funded in as little as 24 to 48 hours in some instances. That kind of efficiency can at times justify the difference in the higher cost of capital. If the profit margins on the venture mitigate the loss on the excess cost of capital.
The two other major benefits to utilizing Working Capital Advances are. Almost all Working Capital Advance funders do not require any collateral from the borrower, they are typically unsecured and can subordinate to other debt obligations. Plus there are no restrictions placed by the funder as to how the money should be utilized within the business, leaving companies to even use the funds to start other business opportunities or boost up their current company to be able to qualify for better financing options later on.
A Working Capital Advance which as we stated is also known as a Merchant Cash Advance is funded by non-bank lenders and alternative financing funders. Working Capital Advances are only funded to U.S. for-profit based businesses. Corporations utilize this Business Financing product as a way to access the capital, that is wanted or needed for temporary use or immediate needs. Working Capital Advances are not traditional loans. They are advances of capital based off of the companies trending cash flow revenues and receivables. Basically they are purchasing the company’s expected revenue stream at a discounted rate.
In order a for-profit business to be approved for and funded a Working Capital Advance a few basic guidelines need to be met. Including but not limited to the owner/principles of the business having a minimum personal credit score of at least 500. The corporation needs to have been in business for at least 6 months. Almost all funders will only consider an application from a business that has a monthly revenue of at least $15,000 to $25,000, or $180,000 to up $300,000 as a minimum of annual revenue needed to apply. This is a source of quick liquidity but please keep in mind they come with a steep cost of capital.
Working Capital Advances are payments are full principal and interest up until the full balance is repaid. Corporations can pay them down either via a percentage of each credit card sale batch out, via a lockbox account or the credit card processor officiating the repayment process through to term. The other options are fixed or weekly payments that if paid til term will satisfy the full balance owed and release the business from the obligation in full satisfaction.
This Business Financing product the terms are short from 4 months to all the way out to 18 month terms, although 12 months in term is probably the industry average.
This type of financing often may require one or all of the majority shareholder principals to sign either a direct personal guarantee or a personal guarantee of performance. The goal of either guarantee is to act as a security measure, since this type of funding requires less scrutiny for underwriting and does not require collateral which would’ve been another form of security for the funder.
Working Capital Advance schemes can help allow companies to meet sudden demands for their products when working capital or to lock down materials when a golden opportunity arises. Access to quick capital helps to ensure that the company has enough cash available to be in operation, and yet stay competitive at the same time.
Whether it’s for payroll, inventory, materials or expansion, Corporations can try to secure a Working Capital Advances to provide the capital required to keep the business thriving.
In order for corporations to potentially qualify for a Working Capital Advance here is a list of some of the most crucial requirements a business needs to meet.
Corporation must be a for-profit U.S. based business, in a non-restrictive industry like firearms or adult entertainment.
Corporations should have a minimum of 6 months in business but some funders may want to see a minimum of 1 year of time in business.
The owners of the company need to have a personal credit score of at least 550 or more. Yet please be advised the lower the owners credit scores that may affect the funding offer being made to the business.
In order to qualify for this business financing product corporations need to be reporting a minimum $180,000 annual revenue ($15,000/month) ideally $300,000 in annual revenue ($25,000/monthly)
Most funders will expect to see a minimum of the 3 to 6 of the most recent months of business banking history along with a credit application.
Standard Interest Rates or Cost
Rates Starting as 12% APR
Typical Underwriting TimeLine
3-5 Business Days
Available Capital Limit
$10k to up to $1mm
Average Term Limits
4 months to up to 18 months
In closing, According to the Securities Industry and Financial Markets Association (SIFMA). As of 2018, the size of the worldwide bond market (total debt outstanding) is estimated to be over $108 trillion. With Commercial Loans markets making up almost 23% of the total. These loans are helping to fuel the growth of U.S businesses, and since they are the backbone of the American economy. Loans to Small to Large scale businesses are pumping up and helping to further develop this nation. In life the best things in life take time which is also true for Business Financing options. As a rule of thumb the better the product, lower the interest rate and longer in term. Then expect the most amount of scrutiny from the underwriting of the funder for that product. In the perfect world a business approved for long-term financing will have no needs for capital and can wait for the funding to come through however long that may take. Yet in reality businesses have needs for capital that arise daily if by the hour. Having access to the Bridge Financing market can make all the difference to those corporations, that find themselves in a bind for immediate capital.
Whether it is for a Commercial Bridge Loan that is going to be paid off and absorbed into the longer term funding option or it is for a Working Capital Advance for a company on the cusp of making it to the promised land of cheaper capital. Either way our team here at Troy Business Groupnot only have the consultants to walk our clients through every step. We also have the connections with the best lenders and funders that can and will deliver for those businesses that do qualify. Please apply online, email us for an appointment, or call us today. Our team is committed to helping your business grow with any and all of a company’s Bridge Financing needs and will guide you through the funding process each step of the way.