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 funding available; however, bridge funding 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?
Bridge funding is a type of short term funding, which is also called gap financing or swing funding. The name ‘bridge funding’ describes them quite well. It bridges the gap between two funding when there is not enough capital. Just to make you understand this funding better, I am going to use this example:
Let’s just say you have applied for a long-term funding, and it will be paid out in six months. Meanwhile, if your business needs urgent capital, you can take out bridge funding with a long-term funding as a form of collateral.
How Can I Use Bridge Funding For Business?
As said, bridge funding are used for bridging the gap between two funding. 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 Funding
Following are the types of bridge funding:
01 – Open Bridge Funding
In an open bridging funding, 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 funding interest from the funding advance. This type of bridge funding is preferred by those borrowers who are not sure about the availability of their expected finance. However, the funders charge a higher interest rate due to the uncertainty of funding repayment.
02 – Close Bridge Funding
Unlike open bridge funding, this funding type comes with a predetermined time frame for the repayment of credit. It is readily accepted by the funders because of the certainty of their funding repayment. Both funders 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 funding, the funder will have the first charge. In simple words, the funder has a lien on the business until the borrowed money is paid. Since there are lower risks with this type of funding, the interest rate is also lower.
04 – Second Charge Bridge Funding
In this type of bridge funding, the funder takes the second charge after the existing first charge funder. These funding 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