January 22, 2021
How to Apply for Bridge Financing
If you find yourself in this predicament, you might benefit from bridge financing. This is very common if you’re paid in installments, purchasing property, or making any other large investment.
In fact, huge companies, from the health insurance giant, Aetna, to the biopharmaceutical behemoth, AbbVie, have used bridge financing to fund acquisitions.
Since it provides funds relatively quickly, and for a short time, bridge financing comes in handy for these large, short-term investments. However, since bridge financing is not generally considered a traditional form of financing, there’s some confusion over how to apply for it.
In this post, we’ll review the steps that you should take to apply for bridge financing so that if you ever need to acquire it, you’ll be prepared!
4 Steps to Take When Applying for a Bridge Loan:
1. Check Your Financial Health
Any bridge lender you seek financing from is going to do detailed due diligence to decide whether you’re a creditworthy borrower or not. Bridge financing, because it’s contingent on you securing permanent financing, is relatively risky for the lender. Due to this, you should evaluate your business's overall financial health prior to applying. To start, you should know your business's typical monthly sales, current credit score, and any other relevant financial information. If you currently have bad credit, it might be challenging to get approved. In addition, if you already have a large amount of debt or you have no track record of completing these types of transactions, you may struggle to get approved. If you’re still not sure if bridge financing is right for your business, move on to the next step.2. Research Multiple Lenders
Just as you should prior to applying for any financial product, you should compare your options when shopping for small business bridge loans. The terms and conditions of bridge financing vary considerably from lender to lender, so it’s important to select a lender with options that best fit your needs. In addition, there's significant variation among bridge lenders. For example, some may specialize in financing only certain types of projects. Due to this, you should familiarize yourself with the several lenders before you decide on which one you'd like to apply with.
3. Compile Your Documents
Bridge finance providers, like traditional lenders, will want to see tax returns and financial information to assess your financial health. You’ll also need to provide an action plan and a breakdown of the costs of your project. They need this so they can evaluate the likelihood of your plans falling through and you not being able to repay the small business loan. In addition to financial documents and an action plan, you should also bring your resume. A successful track record will bode well for your chances of approval, and the lender will likely appreciate you for providing them with as much background information as possible. For example, let’s say you’re seeking bridge financing so you can close on a property which you plan to flip for a profit. If you’ve flipped dozens of properties successfully, the lender will be more likely to approve your application.4. Submit Your Application and Communicate with the Lender
Once you've selected a bridge loan provider, contact them to ensure you fully understand the application process. Have your documents prepared, and make sure they have everything they need from you. If you’re difficult to get a hold of, slow to submit needed documents, or not forthcoming, you make life hard for your lender. They’ll be forced to delay your application, which could be disastrous for your project. Plus, lenders want to build a lasting relationship with you, so make it easy on them by being efficient throughout the application process.Conclusion
Once your application has been submitted, all you can do is wait. Hopefully, you’ll be approved by the lender you’ve applied with. Before you sign on the dotted line, though, make sure you’ve asked all necessary questions. Your loan officer should be more than happy to clarify anything for you. With the bridge financing in place, it’s up to you to turn that additional working capital into business success, so good luck!
Editor’s Note: This post was updated for accuracy and comprehensiveness in January 2021.