Open bridge loans are an essential tool that can carry your company from one round of investment to the next. Typically, there can be a waiting period between the various influxes of cash, and in the interim, you may need the security open bridge loans can provide.
This type of financing is expected to be short term in nature, and it is expected to be paid back. It is also for the payment of routine business expenses only and is not for scaling or for costs related to expanding your operations.
Securing Debt For The Lowest Interest Rate Possible
It’s vital to remember that this instrument is solely there to provide you with respite, and as such can be taken out for even a modest amount. It helps to assess the needs of corporation and to accurately come up with a figure that will help keep you afloat without going overboard. At the same time, you don’t want to underestimate and come up lacking while waiting for new resources to come in. Put simply, there is a lesser degree of risk associated with a smaller line of credit.
There are also options available to obtain equity-based financing, and this carries with it the benefit of not having a debt-based repayment schedule, allowing you to utilize a network of experienced equity partners. It is important to consider that investors will often gain a voice in the running of your company, however, and this must be carefully examined.
One built-in way to save money on interest is to pay down the balance early. You’ll not only incur less fees because you’re not borrowing money for the full term but also because many agreements contain prepayment incentives, for example, on an amortizing commercial bridge loan.
In other instances where you have a factor rate, this will mean that you are expected to pay a set figure on interest in all situations, but even here, you can insist that your agreement be written with a prepayment discount included. You should read the fine print carefully and avoid any situation wherein there is a prepayment penalty, as it removes any opportunity of your completing the terms of the contract in a manner favorable to reducing interest.
Particularly as regards interest, some business owners will use the bridge loan to obtain prime property that is unlikely to stay on the market for long. In doing so, the interest can be effectively lowered by seeking refinancing as quickly as possible while benefiting from any revenue inherent to this new purchase. It is important to understand, however, that the secondary loan will take more time to procure than the original.
It is crucial to make sure that your timing is right when applying for your open bridge loan. This is because you don’t want to start a new round of financing because funds are running low. That gap is best served by a loan, and you’ll want to demonstrate adequately to your backers what future income, investors, or other business-related endeavors will likely soon be supplied to your firm.
One other purpose for the bridge loan is to buy non-perishable stock that is fundamental to the running of your business and that is available for rock bottom prices. It is necessary to show investors that this will contribute to the overall profitability of your operations and that it will cut down on the expenses that you regularly accrue. In this case as well, it is usually imperative to reduce interest rates by seeking out another line of credit to pay back the first loan.
Fidelman & Co. specializes in management consulting, presentation advisory, and financial modeling. We focus on building businesses alongside entrepreneurs and investors. Contact us today for more information about what we can do for you.