If you’re starting a company or already running a business in Phoenix, Chandler, Scottsdale, or anywhere else in the Grand Canyon State, you may be looking for business financing.
In your search, you may have heard of bridge loans. Read on to learn more about this unique type of financing for your Arizona business.
What Is a Bridge Loan?
A bridge loan is a short-term loan that helps borrowers meet immediate cash flow needs while waiting for funding from more permanent financing. That’s why it’s called a swing loan, gap financing, or interim financing.
Its main purpose is to “bridge the gap” between times when funding is needed but not yet available.
A bridge loan is a popular solution offered in the real estate market. It makes it possible for homeowners to get into a new home while waiting for their current residence to sell.
Bridge loans are also advantageous for real estate investors looking to flip foreclosures and investment properties.
Similarly, businesses use bridge loans to cover expenses while securing other types of financing, such as getting investors or securing a longer-term loan.
How to Get a Bridge Loan in Arizona
To get an Arizona bridge loan, you must meet certain eligibility requirements. Each lender has their way of assessing your qualifications.
Reach out to a specific lender before applying to ensure you have all the documents they need. If you don’t have time to research bridge lenders, you may prefer to work with loan advisers for commercial loans or mortgage brokers for residential real estate loans.
Where to Get a Bridge Loan in Arizona
You can apply for bridge loans from local banks, credit unions, and online lenders. Bridge loans are also available through hard money lenders.
Hard money lenders approve loans based on collateral rather than the borrower’s qualifications. As a result, you can get funded quickly instead of waiting for approval from traditional lenders and mortgage loan companies.
What Lenders Look for Regarding Bridge Loans in Arizona
Lenders usually consider your personal credit score, time in business, revenue, debt-to-equity ratio, and the collateral you have to offer to get approved for a bridge loan. We discuss each one below.
Credit score: Your credit score reflects how responsible you’ve been with your credit in the past. Lenders use it to evaluate your creditworthiness, so the higher your score, the better. You also get better loan rates and repayment terms with a higher score. Because of the short-term nature of the loan, bridge loan lenders commonly ask for a minimum credit score of 670.
Debt-to-equity ratio: If you’ve applied for a mortgage, you’re probably familiar with the debt-to-income (DTI) ratio, which calculates how much of your income goes toward fixed expenses and debts. The debt-to-equity ratio is similar, except it measures your company’s total debt in relation to the total value of the business. Lenders use it to ensure a business isn’t carrying more debt than it can afford.
Business income: Lenders also consider your revenue when applying for a bridge loan. They use it to assess if you have the cash flow to repay the loan. Lenders also use your annual revenue to calculate the loan amount you can borrow.
Time in business: Lenders consider your time in business to measure how risky it is to loan to you. The reasoning is that the longer your company has been operational, the less risky you are.
Collateral: Commercial bridge loans can be secured by equipment, accounts receivables, inventory, or real estate. If you’re getting a bridge loan to finance commercial real estate, most lenders require that you pledge the property you’re purchasing as collateral. Lenders typically offer a loan amount of 70% to 80% of the property’s loan-to-value (LTV) ratio or after-repair value (ARV) ratio. So, ensure you have the capital to fund the down payment or part of the purchase price.
Pros and Cons of Bridge Loans
Here’s a quick rundown of the pros and cons of bridge loans to help you determine if it’s a good option for your business.
Pros of Bridge Loans
- Offers a fast funding solution for businesses
- Provides working capital to companies looking to take advantage of profitable business opportunities
- Allows companies to purchase commercial properties for business use or as investments
- Offers peace of mind to business owners knowing they have cash available for operating expenses while waiting to secure other forms of long-term financing
Cons of Bridge Loans
- Comes with higher interest rates than other small business loan options, like short-term loans, equipment financing, and SBA loans
- Comes with more fees, such as origination fees and appraisal fees
- Has more strict requirements than other loan options and requires collateral, so it can be difficult to qualify for
- Is a short-term or interim financing, so you’ll still have to look for more permanent financing options
About Business Bridge Loans in Arizona
With its lower tax rates and competitive business incentives, Arizona is a great place to start and grow a business. But running a company and managing cash flow can be difficult.
This is true whether you’re a new business or an established company.
Bridge loans can be especially beneficial for your Arizona business because you’ll have access to cash immediately when you need it. This helps you avoid one of the main reasons companies go bankrupt, which is a lack of capital.
New businesses often overestimate how quickly they’ll start making sales but underestimate how much they really need to get started. And established companies can run into cash problems even when they have steady sales because of large overhead expenses.
Plus, not every sale is paid upfront, and customers sometimes pay late or not at all.
Check out the ways you can use bridge loans to build a successful business in the section below.
When Does It Make Sense to Get a Business Bridge Loan?
For many business owners, it makes sense to get a bridge loan when:
- They’re waiting for investor funding but need cash for operating expenses
- They want to take advantage of profitable opportunities
- They want to stock up on inventory
- They’re ready to buy a commercial property or purchase real estate investments, but financing will take time to finalize
Taking on investors and receiving funding from long-term loans takes time. That’s why business owners turn to bridge loans when they need a quick and easy way to acquire capital.
They might then refinance the loan for better rates and longer repayment terms.
Where Can You Find Business Bridge Loan Lenders in Arizona?
Whether in Tempe, Tucson, Glendale, or Peoria, you can find a bridge loan lender. You may want to talk to your local bank or credit union first. Or you can turn to online lenders and private lenders for hard money loans.
But if you don’t have time to go to your bank or research legitimate online lenders — plus try to understand each lender’s requirements — you might consider working with Clarify Capital.
Our loan application process is streamlined, with no confusing terms and complicated paperwork. You also have a dedicated Clarify advisor working with you every step of the way.
Contact Clarify Capital to Find the Best Business Bridge Loan Options for You
Arizona is climbing the ranks among states with the best business environments in the country. A booming economy is always good news to business owners.
Let Clarify Capital help you get the funding you need to build a successful business. Talk to us today to find the best bridge loan for you.