Alberta is located in Western Canada and is the fourth most populous province in the country. It is also one of the three Prairie Provinces of Canada. Being said that, Alberta offers several opportunities for both startups and already existing businesses.
The province’s cities, including Calgary, Edmonton, and Red Deer, offer some of the best business opportunities to entrepreneurs. Alberta is primarily known for having excellent alternative funding organizations. It helps entrepreneurs to start their own business.
There are many kinds of loans available; however, bridge loans are quite popular in this region of Canada. So, if you are looking for some finances to grow your business, here is everything you need to know about bridge funding.
What Is Bridge Funding?
A bridge loan is a type of short term loan, which is also called gap financing or swing loan. The name ‘bridge loan’ describes them quite well. It bridges the gap between two loans when there is not enough capital. Just to make you understand this loan better, I am going to use this example:
Let’s just say you have applied for a long-term loan, and it will be paid out in six months. Meanwhile, if your business needs urgent capital, you can take out a bridge loan with a long-term loan as a form of collateral.
How Can I Use Bridge Loans For Business?
As said, bridge loans are used for bridging the gap between two loans. It helps you cover various immediate costs in the following ways:
- Conduct emergency repairs of maintenance work
- Cover financial shortfalls
- Ease the pressure on your working capital
- Maintain daily operations
- Improve everyday cash flow
- Replace broken equipment
- Buy discounted materials and inventory
- You can keep the flow smooth by paying to anyone who you owe money to
Types of Bridge Loans
Following are the types of bridge loans:
01 – Open Bridge Funding
In an open bridging loan, the repayment method is not determined at the initial inquiry, and there is no fixed payoff date. That is why most bridging companies deduct the loan interest from the loan advance. This type of bridge funding is preferred by those borrowers who are not sure about the availability of their expected finance. However, the lenders charge a higher interest rate due to the uncertainty of loan repayment.
02 – Close Bridge Funding
Unlike an open bridge loan, this funding type comes with a predetermined time frame for the repayment of credit. It is readily accepted by the lenders because of the certainty of their loan repayment. Both lenders and borrowers agree upon a time period for the debt repayment, which results in lower interest rates.
03 – First Charge Bridge Funding
If a borrower takes a first charge bridge loan, the lender will have the first charge. In simple words, the lender has a lien on the business until the borrowed money is paid. Since there are lower risks with this type of loan, the interest rate is also lower.
04 – Second Charge Bridge Funding
In this type of bridge loan, the lender takes the second charge after the existing first charge lender. These loans usually last for 12 months and have a higher risk of default. Hence, second charge bridge funding has a higher interest rate.
Pros of Bridge Financing
- It’s a faster way to obtain financing
- It gets approved easily
- It helps you navigate long payment cycles
- It allows you to keep control of your business
- It usually offers a low-interest rate
- It helps you make timely payments
- It requires minimal credit requirements with sufficient collateral
- It provides cash flow while you wait for the permanent financing
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This post was written by sharpshooterseo