April 13, 2024

Business Bib

Business & Finance Blog

What is a 10-Day Bridge Loan for Biz and is It Right for You?

4 min read

Access to bridge funding offers you terrific flexibility when you need to quickly make a move to improve your business. Like a lot of business loans, a bridge loan has no prepayment penalties. Unlike other business loan options, bridge loans are quick and allow you to make quick, nimble moves that can allow you to capitalize on great opportunities.

Bridge Loans are Fast

For those who do any manufacturing, you know that machinery and custom workspace tools can eat up a lot of your budget. If you find out that a competitor in your industry is selling, downsizing, or relocating, you may be able to make improvements to your business quickly.

However, these types of opportunities will often require immediate funding, sometimes quicker than your bank lender can process a loan. By applying for a 10-day bridge loan with pre-approval, you can be the first person to hand over the money when a rare business opportunity becomes available. This is because a bridge loan lender can come up with the funding you need in as little as 24 hours.

When the loan with your bank comes through, you pay off the bridge loan and keep the application open for the next time you need quick access to cash. This form of immediate money lending can help keep your business cash ready while waiting for funding from another source.

Bridge Loan Documentation Requirements

If you have a good relationship with your bank, you probably have a steady flow of information back and forth that includes your

  • accounts receivable
  • accounts payable
  • payroll data
  • tax returns

Staying on top of this data transfer can take time out of each month. However, your bridge loan provider doesn’t need that. Many bridge loan providers need 6 months of bank statements. Once your application is approved and in place, you can keep it active by simply providing your lender with a copy of your bank statement each month.

Bridging the Gap

Obviously, bridge loans are not a good long-term investment. However, if you’re waiting for a line of credit to open up with your bank and you need funding to bump up your inventory from an auction or private sale, the bank loan may take more time to fund than your seller can wait. Bridge loans allow you to move more quickly, particularly on industry-specific sales.

One of the challenges for those running specialized businesses is communicating the value of a particular purchase, especially if you’re buying from an auction or a private seller, such as a business that is moving or closing. As an expert in your industry and your business, you understand the value of the product and machinery available.

You can use your bridge loan to argue profitability with a bank lender. By showing your lender how much you’re paying vs. how much your equipment costs could be, you can show a lending company how much savings you’re able to procure from business expansion.

Getting your lender to understand the value of these products and savings will probably take more than 24 hours; their processes and expertise may be effective but are probably not very nimble. Bridge loans are a quick way for you to improve the value of your inventory, your offerings, and your business overall.

Risks to Consider

Bridge loan providers require no collateral. These loans come from entrepreneurs who make their money by providing short-term loans to folks who are temporarily short or waiting for a loan from a bank. If you have a bank loan pending, a bridge loan is ideal. If a bank loan has fallen through and you’re looking for another long-term lender, a bridge loan may not be the best option.

When a bridge loan goes unpaid, your business credit rating could suffer drastically. Additionally, you may destroy relationships over time. Do not rely on a bridge loan for a long-term funding need.

Stay Financially “Topped Up”

Staying on top of your funding sources can greatly increase your business flexibility. Your bridge loan application will be a very simple process, particularly once you’ve had a successful bridge funding and timely payoff. Keep that application open and get on a monthly schedule of getting your data to your bridge lender.

Your bank will also want your information on a regular basis. While they don’t need your statements, they will need information on your business cash flow and re-evaluate changes that occur. Part of being financially nimble as a business owner is having your funding sources fully informed so you can act quickly when opportunities arise.