The bridging loan is a financial solution for companies awaiting future collection and who wish to obtain cash without having to wait for the expected collection. How exactly does this service work, and who is it for? Our explanations.
Concretely, a bridging loan is a short-term loan (see very short term) which must be guaranteed by an asset, such as for example a receivable pending collection. This solution essentially aims to ensure an immediate supply of cash without having to wait for the expected inflows to take place.
A bridging loan is aimed at businesses of all sizes and makes it easier to obtain sums that are sometimes large, which can be used, for example:
- To pay its suppliers, to see to negotiate its prices thanks to a faster payment.
- To finance the operating cost of the company pending the expected collection.
- Or simply avoid working just in time thanks to a cash injection.
What is the difference with a “classic” loan?
A bridging loan differs from a “traditional” loan in two elements: the duration of the loan, and the presence of an asset as collateral. Combined, these two elements often allow the company to obtain a particularly advantageous offer. Indeed:
- As the cost of a loan is directly proportional to its duration, opting for a short-term bridge loan can minimize the interest to be paid.
- As the loan is secured by an asset (real estate, securities, debt, etc.), the risk decreases, making it possible to obtain a more advantageous interest rate.
- Depending on the guarantee (amount of the claim, value of the property or securities, etc.), it is possible to obtain higher sums.
A company active in the food industry has planned to sell a warehouse, considered too far from its main activity. Although a promise to sell has been signed, the sale itself should not take place for several months. Needing this money to finance the purchase of a new, closer warehouse, the company opted for a bridging loan of 750,000 dollars:
- The contract is established over a period of 12 months
- The liquidity obtained makes it possible to finance the purchase and fitting out of its new storage area
- As an indication, the total cost would then amount to 19,220 dollars only for a rate of 4.8%
Solutions with or without banks
If it is possible to obtain an offer afterwards from your bank, it can also be interesting to go through the services of a bridge credit specialist like Multilend. The latter will allow you to obtain an offer without having to involve your bank (your banking relationship remains intact), but also to go, alternatively, through a “crowdlending” type solution to benefit from often more advantageous conditions.