This can be for such things as needing to cover off unexpected expenditures or ramping up for a newly landed sales order.
But even in situations where the cash flow requirement is planned, it can be difficult to get a cost effective solution in place in the time you have to work with.
This is why private money bridge loans secured by real estate are such an excellent source of short term capital.
Bridge financing in the form of a first or second or even third mortgage can be put into place quickly against the equity in a residential or commercial property.
While this equity may be accessible through a bank or institutional loan, many times these cannot be arranged in time, or the qualifications end up pushing these slightly outside of the reach of a business owner.
Outside of real estate financing, bridging can be done on different forms of assets such as accounts receivable, inventory, purchase orders, equipment, and other forms of tangible assets.
But the process for other forms of short term asset backed financing can be considerably longer to get into place as well as more costly.
Typical factoring rates range from 18% to 24% per annum.
Refinancing of equipment starts at 12% and tends to provide lower loan to value ratios due to the higher risk associated with used equipment.
This brings us back to private mortgage lending as a great way to fill your cash flow gap provided you have equity in real estate to draw from.
And just because your in business does not mean that the real estate needs to be a commercial property.
The reality is that residential properties on average are easier to secure bridge loans on due to the lower amount of due diligence required to get something in place.
When a residential first or second mortgage is taken out from a private lender, the funds are typically lent to the business by the business owner or shareholder and the business pays the cost of capital and repays the principal.
Most bridge loan facilities have open to fully open prepayment, so if the need is very short term, the loan can be paid back as quickly as possible, potentially without any prepayment penalties as well, depending on the individual bridge lender.
A private bridge loan is often times overlooked or not considered at all for business cash flow financing because it doesn’t fit into what most people would describe as working capital financing.
But in essence, that is exactly what almost all private mortgages represent with terms of no more than one year in length.
So if you’re in need of short term cash flow injection into your business and you have some equity in real estate to leverage, then a bridge loan backed by property based security not only be an option to you, but your best option as well in terms of cost and speed to get into place.