Business bridge loans provide a valuable funding resource for many small-business owners in need of capital. Thanks to bridge loans, your business can keep operating and growing while securing long-term financing solutions.
Keep reading to learn more about how you can use bridge loan financing to run your business. We’ll also discuss how you can get funded for this type of loan quickly and easily.
What Is a Business Bridge Loan?
A bridge loan offers a temporary solution to help meet a company’s immediate cash flow needs while it secures more permanent financing, like equity financing or a long-term loan. A bridge loan is also called a swing loan, gap financing, and interim financing.
A bridge loan works like a short-term loan where the borrower receives a lump sum upfront to be paid back within a specified amount of time with fixed monthly payments or balloon payments.
Balloon payments refer to loan terms where initial payments are interest-only and the last payment is intentionally larger. Since it “bridges the gap” when capital is needed but not yet available, bridge loans tend to have short repayment terms that fall within six months to a year.
Whether commercial or real estate, bridge loans are secured loans. This means you’ll need to put up collateral to secure the loan. In most cases, the value of your collateral determines how much you can borrow.
Bridge loans are fast and easy funding options for businesses. It allows companies to cover working capital and jump into profitable opportunities while waiting to receive capital from other sources. It’s a flexible financing option that provides peace of mind for business owners who want cash available when they need it.
When Should You Use a Business Bridge Loan?
Businesses and startups use two main types of financing to raise capital: equity financing and debt financing. Debt financing is borrowing money from family, friends, and financial institutions. Equity financing refers to the process of offering a percentage of the business to investors or selling shares to the public to raise capital.
However, it takes time to receive funding from investors or get a long-term small-business loan. So, here are the common uses of bridge loans:
Cover daily operating expenses, such as wages and salaries, rent, and inventory, while waiting for financing
Buy commercial real estate or necessary equipment for business use
Pursue profitable business opportunities, such as buying inventory in bulk for a discount
Keep the company afloat during a low sales season
Help fund time-sensitive projects before getting long-term financing
Fund expansion plans, such as opening a new location or hiring additional employees while waiting for long-term funding
How to Get a Fast Bridge Loan for Your Business
You can apply for bridge loans from banks, alternative lenders, and hard money lenders. So, eligibility requirements can be less or more strict depending on the loan provider and your preparations.
Before applying for a bridge loan or any type of bank loan, take some time to determine how much your business needs and how much you can afford to borrow. When you borrow more than you can afford to repay, you can put your business at risk.
But if you borrow too little, you may end up with an unfinished project and no way to repay the loan. Understanding your limits can help you negotiate the terms and rates.
A bridge loan is short-term financing you can get with a business or personal asset. If your longer-term financing falls through and you can’t repay the loan, the lender can take possession of your property.
You can’t extend or refinance bridge loans, so it’s important to understand the terms of your contract.
Below are a few tips on how to get a bridge loan quickly.
Gather the Required Documents
Since requirements can vary per lender, you’ll want to contact the lender and ask for a list of criteria and required documents. Here are the general criteria most bridge loan lenders consider:
Credit score: Lenders pull your credit score to gauge how responsible you’ve been with your credit in the past. Your personal credit score shows your creditworthiness — how likely you are to repay your loan based on your credit history. So, the higher your score, the better. Higher scores not only help you get approved for loans but may also mean lower interest rates and better repayment terms.
Debt-to-income ratio: Your debt-to-income ratio (DTI) calculates the portion of your revenue that goes toward operating expenses and debt repayments. Lenders use DTI to assess whether you can afford your loan payments.
Time in business: To qualify for commercial bridge loans, your company typically needs to operate for at least six months. Lenders use your time in business to assess their risk of lending to you. So, the longer you’ve been operational, the lower their risk.
Annual revenue: Lenders look at your cash flow to ensure you can afford to repay the loan. To qualify for a bridge loan, most lenders require that you have a consistent monthly revenue of $10,000 or more.
Collateral: Since bridge loans are secured loans, you must put up collateral for them. Ensure you have the necessary documents for the collateral on hand.
Here are some documents lenders might expect you to provide during the application process:
Legal identifying documents, such as a driver’s license, passport, Social Security number (SSN), and employer identification number (EIN)
Personal and business tax returns
Financial statements for your business, such as profit and loss (P&L) reports, balance sheets, and cash flow statements
Apply for a Business Bridge Loan
When applying for business loans, you’ll typically contact a lender and express your need. They may ask you to provide and fulfill a set of criteria and requirements depending on the loan and your circumstances. The process is generally quick and easy if you have all the documents and if you qualify.
However, if you don’t qualify the first time, applying for a loan can be time-consuming and frustrating. You may even have to look for another lender and repeat the process.
With Clarify, you can apply for a bridge loan in just a few easy steps. Simply fill out the application and you’ll be matched with a Clarify advisor who will guide you through the process. You’ll have access to a marketplace of more than 75 lenders, so you get the best rates and terms.
Quickly Secure Your Bridge Loan
A bridge loan is a temporary loan to help you cover cash flow gaps while waiting to receive funds from other sources of capital. It’s designed to be a short-term loan option. So, the underwriting and funding process is faster than other small-business loans.
At Clarify, we’ve streamlined our application process to make it easier for you to get funded. Bridge financing may take one business day or a week. Once you submit your loan application and receive approval, you’ll have the money in your bank account in as little as 24 hours.
Bridge Loan FAQs
See answers to frequently asked questions on bridge loans below.
How Long Does It Typically Take to Get a Bridge Loan?
The time frame varies depending on the lender. Some types of bridge loans with strict collateral requirements, like commercial real estate bridge loans, may take some time to secure. However, borrowers are typically funded within a matter of days.
What Credit Score Is Needed for a Bridge Loan?
At Clarify, we recommend a minimum credit score of 550. Traditional banks and other financial institutions typically require a credit score of 670 or higher.
What Is the Maximum Loan Amount for a Bridge Loan?
The loan amount is based on the value of the collateral, your annual revenue, and your or your business’s credit score. You might be able to borrow up to $750,000, depending on the type of bridge loan you seek.
Get a Business Bridge Loan Through Clarify Capital Now
Bridge loans provide a financing option to small-business owners needing a quick and easy capital infusion. If you want to explore your funding options, contact Clarify Capital and speak to one of our dedicated advisors. Clarify advisors can help you choose the best solution for your business financing needs.
We’ll also connect you to more than 75 lenders so you get the best rates. Apply for a bridge loan today!