There may be times when your business is experiencing a lack of cash flow, or may be waiting for funds from a sale or other various assets. In this case, a business may consult a bridging finance broker who will find some sort of way to maintain your company’s solvency during the wait for additional cash flow.
Companies needing bridge financing have various monetary needs. Some will know when they can pay back the money and others will not have a firm date for their influx of new cash. Open bridge financing is a type of lending that has an open payback date and thus usually has a much higher interest rate because of the higher risk for the bridging finance broker. Closed bridge financing has a lower interest rate because the borrower and the broker have agreed on a specific payback date. Bridge financing is often used in real estate deals because it commonly takes longer to receive money for a property sold than the time given to close on another property.
Bridging finance brokers will offer the company or individual a variety of financing options. Investment banks may underwrite a company’s worth before a company has an initial public offering. After the IPO, the company will sell the bank stock at a discount to pay off the loan. Other bridging finance brokers will offer the option of underwritten bonds. The banks that underwrite the bonds will try to sell the bonds on the company. If they cannot, they must purchase the unsold bonds.
Bridge financing is usually more expensive than normal financing because they are high risk loans (for the lender) and often need to be arranged quickly, depending on the borrower’s circumstances. Bridging finance brokers will know the optimal short term loan option for a given situation.