Friday, April 20, 2007

It's a Bridge, Not a Pier

I've been receiving quite a few requests recently for bridge loans. Most of those requests are from people who are not always clear on what a bridge loan is.

A bridge loan is a short term financing that is used by a company until longer term, permanent financing can be arranged or some liquidity event is scheduled to occur. It's also called a swing loan, interim financing or gap financing.

A bridge loan either is secured by collateral or has some event that exists that will repay the loan at his maturity or expiration. The lender needs to know that some repayment scenario exists with a reasonable if not high level of probability.

A bridge loan is not an unsecured loan that will be repaid from proceeds of a future financing that is no more than a dream. In other words, mere plans to raise additional capital from other parties is not likely to be deemed an acceptable repayment scenario. Your expectations that you will land a big contract may not be deemed an acceptable repayment scenario.

If you need money for a short period of time and have no collateral or certainty of a future event that can result in repayment, then a bridge loan isn't your solution. Perhaps venture debt may work for you.

Bridge lenders want to know that there's dry land on the other side of the bridge. If not, all they've got is a pier. A bridge to nowhere.

Need help finding a bridge lender? Read "Matchmaking for Business Loans" and give me a call.

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