Running a business means dealing with a lot of things simultaneously, including employees, inventory, operations, and unexpected expenses. But one challenge almost every business owner faces at some point is a temporary cash flow gap, which can be due to delayed payments from customers. In moments like these, you need quick funding that keeps your business running smoothly without long approval processes or complex conditions.
This is where a working capital bridge loan becomes incredibly useful. It is designed to help you cover short-term financial needs until your incoming payments arrive. In this blog, we will break down what this loan is, how it works, its features, and real examples to help you understand it clearly. Let’s dive in!
In the following points, we discuss how a bridge loan works, in simple words. Keep reading with us to learn more.
The Need
A business faces a short-term shortfall in working capital, which generally results from delayed client payments, securing a time-sensitive opportunity, or costs related to a larger transaction, like an acquisition.
The Solution
In this situation, the business takes a bridge loan to cover these immediate expenses.
Long-Term Funding
The company works to secure more permanent financing or other capital, including new-term loans and equity funding.
Repayment
After the long-term funding is available, the business repays the bridge loan, including interest and fees.
Specs of Working Capital Bridge Loan
A bridge loan has five specifications that make it different from other loans. Scroll and learn these specifications with me.
Short Term
These are short-term loans, with the duration ranging from a few weeks to a year.
Fast Approvals
Traditional term loans take a long time. Unlike them, bridge loans offer fast approval. They can get approved as quickly as 24 hours.
Higher Interest Rates
Due to the short-term nature and associated risk, bridge loans have higher interest rates than long-term loans.
Collateral
Bridge loans may require you to provide collateral, which can be your property or other assets.
Purpose
These loans are used to fulfill immediate needs, such as payroll, inventory, and other day-to-day operational costs.
Example
A company is about to buy another firm; however, it has yet to receive approval for the large, long-term loan needed to complete the transaction. To ensure the deal closes on time, the company takes a bridge loan. After the long-term loan is approved and disbursed, the company immediately uses the funds to pay off the bridge loan.
After reading this blog, you have now learned what a working capital bridge loan is. Use it when your business takes an unforeseen dip to overcome the sudden challenge. Don’t know how to apply for and get a bridge loan? We are Lion Investment, your trustworthy partner for the process. We have been in the industry for a long time, helping businesses secure loans and seize new opportunities. We would love to do the same for you. So, contact us for a consultation right away!
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