As a business owner, you might be needing additional working capital so you can complete projects. If you have received financing, you will be able to maintain your business. Here we will explain how bridge financing works and tips on how to best utilize it.
What is a Bridge Loan?
You might have received working capital and not even realize that you could be using this money as bridge financing. A bridge loan is financing you can use to bridge the gap between getting paid at the start and end of the project. Many business owners in the construction or service industry are paid in installments so they use bridge loans to ensure that they have money on hand in between payments. If your business operates like this, then we encourage you to use your loan as bridge financing.
How to Use Bridge Financing
You can use bridge loans in numerous ways, here are some of the best ways.
Inventory – using a bridge loan for inventory will allow you to be fully stocked so that you can complete each project. Running out of inventory can stop the process you are making so do not risk this.
Payroll – if you cannot pay your employees, they will get upset. Even if your business is paid in installments, it does not mean that you can pay your employees. They will leave and try to get a job somewhere else. Bridge loans will allow you to have enough money for payroll so that you and your employees can focus on completing your jobs.
Equipment – without reliable equipment, your business cannot complete projects and could even lose out on it completely. A bridge loan can come in handy, and the money will let you repair or update your equipment if necessary.
Work on Multiple Projects – having bridge financing means you can afford to take on additional jobs. You might have been only able to finance one project at a time. With a bridge loan, you can pay for the various costs need to do multiple projects.
Accept Bigger Projects – you could tackle larger jobs than you could in the past. It can be challenging to finance a large project if it requires more inventory, time to complete or more employees to your team. Bridge loans give you the opportunity to do so much and expand your business to grow.
Is a Bridge Loan Right for You?
There is a lot to consider before deciding where you should acquire a bridge loan. You will typically have to have great credit, a low debt-to-income ration and equity of at least 20%.
You should review the terms of each lender if you are approved my several of them before you choose one. Look out for prepayment penalties and hidden fees and consider the payoff time offered by your potential lenders.
At the end of the day, you know what is right for your business and what level of risk you are comfortable assuming. If you think a bridge loan is right for you, start to prepare to apply for a loan.