One of the most used forms of financing when there is time mismatch between the cash flows in asset sale and purchases.
It can be defined as a short term loan to cover the cash outflows when there is an expected cash inflow to offset. The term of bridge finance can vary from 2 weeks to a year. It is most applied by businesses when they have sold a property or an asset (business) and the settlement date is a far off date, but they need cash now to buy an equipment or invest in business or buy another property. We can design an innovative solution depending on the term of the loan, asset, settlement terms and other sale details.
The interest rates normally offered are fixed interest rates and mostly interest only until the maturity date.
For example, Company A sells its Health Care business in Hawkes Bay and settlement is after 6 months. During this time, Company A got an opportunity to buy a commercial property in Auckland, but they need to pay the funds in one month’s time to settle the property. They can use Bridge Finance to finance the property and repay when they get monies from their asset sale.
It can be designed to purpose fit a loan when a development company buys a land and must settle but they are facing delays in sale of completed homes (3 to 4 months). The company can use the bridge finance to buy the property and repay when they sell their completed homes.
Benefits of Bridge Finance
A bridge finance is secured loan on property/asset and shorter duration, normally the interest rates are lower.
It can be designed to match the expected inflows and outflows and hence provide great flexibility to business.
We at loan square understand the needs of small businesses and are happy to work with them to work around their needs. We would be happy to have a preliminary discussion to understand your needs and can design a loan solution based on your circumstances.