Bridge Loans in Texas: A Short-Term Boost to Business Cash Flow
Bridge loans in Texas are an option worth considering for companies in the state looking for additional capital to help them manage temporary financial shortfalls. Compared to traditional loans, bridge loans have more lenient credit score requirements, offer more flexible terms, and have a faster turnaround time between application and approval.
Below, find out more about bridge loans for Texas businesses, how they work, where you apply for one, and alternatives to bridge loans you may want to consider.
What Bridge Loans Are Used For
Bridge loans are a form of short-term funding that allow business owners to plug a financial gap while they wait for expected money (either from another loan or projected revenue) to come into their bank accounts.
To give examples of how bridge loans work, let’s review some of the most common use cases:
Real estate transactions: Businesses use bridge loans to purchase and/or renovate property. For example, a retailer might want to buy warehouse space but they need a bridge loan to cover their down payment now. They could repay the bridge loan when they receive payment on a large order a couple of months later.
Inventory purchases: Companies use bridge loans to finance inventory purchasing if they need to fulfill a large order or stock up for the busy season. They repay the loan once they sell the inventory and their customers pay them.
Going public: Initial public offerings (IPOs) are expensive and a bridge loan can cover costs like legal and broker fees. Companies then repay their facilities in full once they’ve received capital from their placement.
Improve cash flow: Sometimes, businesses need help with cash flow management to cover payroll, rent, utilities, and sometimes unexpected expenses during seasonal downturns. Once their busy season hits, they can use that cash to pay off the bridge loan.
Investment funds: Fund managers can use bridge loans to take advantage of urgent opportunities quickly, even if they don’t have investors’ cash readily available. They then repay the loan if their investment generates a return and/or they receive funds from their investors.
Buying equipment and machinery: Standard equipment loans require companies to pay an upfront deposit. Some bridge lenders allow clients to take delivery of equipment without a deposit. Clients then repay the loan for extra profits generated by the new equipment.
Mergers and acquisitions: Firms buying or merging with other businesses need to access cash quickly to meet purchase costs, legal expenses, and so on. Bridge loans can provide this funding, which companies repay from additional profits or if they secure long-term funding.
How Does Paying Back a Bridge Loan Differ From Standard Loans?
A major difference between a bridge loan and more standard types of loan is how you repay it. To start, you generally pay it back in a shorter timeframe than a traditional loan. Bridge loan terms range from a few months to a year, although some lenders may extend beyond 12 months.
Also, each bridge lender will have their own requirements for how you make repayments. Some bridge lenders will only require monthly interest payments from you. Other lenders may collect incremental repayments at set intervals throughout the term of the loan, such as daily, weekly, or semi-monthly. Still others may collect the entire loan amount plus interest in one lump sum at the end of the agreed term.
What Are the Key Advantages of Bridge Loans?
Here are some of the advantages of bridge loans for Texas firms:
Access to short-term capital: Bridge loans help Texas businesses access short-term capital quickly when they need it. This flexibility makes it easier for them to meet their expenses or take advantage of time-sensitive business opportunities right away without needing a long-term loan.
Fast turnaround: Bridge loans can be approved and funded much faster than traditional commercial loans and mortgages. This means that you’re able to take advantage of business opportunities that come up quickly.
Greater eligibility: Many lenders, especially online lenders, accept borrowers with lower credit scores, in contrast to banks and credit unions. Also, the application and loan process is less onerous and requires less paperwork, making bridge loans more accessible and straightforward.
No prepayment penalties: With many standard commercial mortgages and loans, borrowers are penalized if they settle their balance in full or make a lump-sum payment to bring down their balance. Most hard money lenders make no such charge.
What Are the Disadvantages of Bridge Loans?
Bridge lending is a convenient and flexible type of short-term loan, but it has the following disadvantages:
Higher interest rates: Bridge lenders do not offer the competitive rates provided on many standard commercial loans and mortgages. These higher loan rates will push up the overall cost of borrowing.
Expensive fees: Bridge loans may come with high closing costs, origination fees, escrow fees, notary fees, and appraisal fees, among other charges. This can make setting a facility up and settling it more expensive than traditional financing options. You’ll need to check with your lender to see if these will apply.
Refinance requirement: You must complete your project and initiate your exit strategy by the date agreed when you borrow the money. If you can’t, you will have to take out another bridge loan, as your lender will be unlikely to extend or roll over your facility.
Where to Get Bridge Loans in Texas
You can access bridge loans in Texas from many traditional banks and credit unions.
You could also approach a specialist commercial finance broker for help. They can often offer bridge loans not available on the open market through private lenders and other sources of funding.
Bridge funding is also available via online lenders and brokers. The advantage of this is the convenience, as you can apply from anywhere.
What Kinds of Short-Term Financing Options Can be Used as Bridge Funds?
While some lenders have specific products that are called "bridge loans," you can also use other forms of short-term or flexible financing for bridge funding, such as:
Cash-out loans: Cash-out loans allow you to refinance equity you have in an existing asset, including personal assets like your current home.
Business lines of credit: This flexible option operates similar to a credit card in that it allows you to borrow up to a certain limit and only pay interest on the amount you use. When you pay down your balance, the amount you pay down becomes available to borrow against during the term of the facility.
Working capital advance: Working capital financing provides funding to cover day-to-day business operations and is typically repaid from future sales. You generally need to repay them in full within a few months to two years.
Personal loan: If you have a good personal credit rating, you might qualify for a personal loan to fund your business needs. However, personal loans, especially unsecured personal loans, generally have high interest rates and lower borrowing limits.
Home equity loan: If you’re a homeowner, you can borrow against the equity in your primary residence to get the funds needed for your business. While you benefit from lower interest rates and a longer repayment period, your home is at risk if you don’t keep up repayments.
Access Bridge Funding for Your Texas-Based Business From Backd
Bridge loans in Texas offer many advantages to companies. The faster turnaround provides businesses with almost immediate access to the funding they need to cover cash shortfalls and take advantage of business opportunities. Many lenders don’t require a perfect credit history either, unlike traditional banks and credit unions.
If you need short-term, flexible funding, consider the options offered by Backd. We turn around applications fast, often providing funding within as little as 24 hours.
Choose from our:
Working capital advance: $10,000 to $2 million with terms of up to 16 months with a variety of repayment options.
Business line of credit: Draw down between $10,000 and $750,000 of funds when you need it, and get competitive terms and rates.
Apply now and you could access the capital you need as quickly as tomorrow.
