Can credit card debt prevent you from moving forward with business credit card funding? If your credit utilization is over 50%, you might be required prior to moving forward with funding. If you do not have the cash for paydowns or do not want to use your cash, what do you do? The good news is that there is an alternative option for you.
What is a Bridge Loan?
A bridge loan is an amount of money lent by a bank or lender for a short-term until an individual or business secures permanent financing. It is also known as gap financing, interim financing, or swing loans.
This type of loan bridges the gap during times when financing is needed but not yet available. This is widely used in real estate transactions. For example, a buyer may use a bridge loan so they can purchase another home before they sell their existing residence.
Corporations and individuals use bridge loans for various purposes in real estate. Lenders can customize these loans for difference situations and here we will discuss how this loan product works in business credit card funding.
Bridge Loan Benefits
- Make the paydowns required so you can get funding needed
- Make the paydowns required even if you don’t have the cash
- Make the paydowns required while conserving your cash
- Use other people’s money instead of your own
- Get the return on investment (ROI) you project
The process is straightforward and happens fast. Once the funding agreement is submitted, the credit reports for the paydowns are monitored.
Bridge Loan Drawbacks
- Comes with a large expense as you absorb a higher interest rate and fees
- The length of the bridge loan is short term
- Need sizable entity and fantastic credit rating
- Not every lender offers them so you might have to look for a different lender than the one who has your primary loan
What You Need for Business Credit Card Funding
Before going through the business credit card funding process here are the basic requirements needed. Your company can be a startup or existing business. There is no revenue or age requirements which is why this is a popular method many choose to do.
- Separate legal entity (Corporation, LLC, etc.)
- Company must be in good standing – A “Certificate of Good Standing” indicates that your business has filed all reports and paid all the necessary taxes and fees with your state’s secretary of state office.
- Employer Identification Number (EIN)
- Business Contact Information
- Business Bank Account
The Bottom Line
There is no right answer if a bridge loan is right for you. It depends on your financial situation, living situation, the economy, and more. Weigh all the pros and cons of the loan before you apply and take the plunge. Bridge loan borrowers enjoy benefits such as freedom and flexibility, while facing downsides such as inflated interest rates and closing costs. When committing to any type of financial commitment, both homebuyers and investors alike should carefully weigh any potential pitfalls against the benefits.
Talk with your lender who will walk you through all the options and discuss the consequences to help you make the decision that is best for you and your family.