{"id":10167,"date":"2019-11-04T17:36:51","date_gmt":"2019-11-04T15:36:51","guid":{"rendered":"https:\/\/www.become.co\/blog\/?p=10167"},"modified":"2019-12-18T10:22:47","modified_gmt":"2019-12-18T08:22:47","slug":"what-is-bridge-funding","status":"publish","type":"post","link":"https:\/\/www.become.co\/blog\/what-is-bridge-funding\/","title":{"rendered":"What Is Bridge Funding & When Should You Use It?"},"content":{"rendered":"\n

Get over it.<\/span><\/p>\n\n

That\u2019s bridge funding explained in three words. But, for anyone asking \u201cWhat is bridge funding\u201d, clearly that isn\u2019t going to cut it. What are you supposed to be \u201cgetting over\u201d anyway?<\/span><\/p>\n\n

Here we\u2019ll delve into the topic of bridge financing and explain what it is, how it works, and why you should keep it in your ever-growing arsenal of business funding solutions.<\/span><\/p>\n\n

Ready? Let\u2019s go!<\/span><\/p>\n\n

Bridge funding explained<\/span><\/h2>\n\n

Bridge funding (otherwise known as bridge financing, gap financing, interim financing, or swing loan financing) is a type of loan that acts as a temporary fix to help businesses cover their expenses until they can obtain a longer-term financing solution. Usually, bridge loans are secured by collateral in the form of real estate, other valuable assets, or a personal guarantee. Additionally, the loan terms for small business bridge financing normally start around 6 months.<\/span><\/p>\n\n

Bridge financing is a useful tool for business owners to use when they anticipate that their funds will run dry in the near future while, at the same time, expecting a larger injection of capital not too long after that; small businesses can use bridge funding to \u201cbridge\u201d the financial gap between those two points.<\/span><\/p>\n\n

You can avoid finding yourself in a struggle to climb out of a valley of debt with bridge funding. Use it as a financial fix that will help you stay in the black until a more permanent solution can be arranged.<\/span><\/p>\n\n

What is bridge funding? You\u2019ve got the answer.<\/span><\/p>\n\n

Another question remains: What forms of financing qualify as bridge funding?<\/span><\/p>\n\n

Generally speaking, bridge funding comes in three forms:<\/b><\/p>\n

    \n
  1. Debt bridge financing<\/span><\/li>\n
  2. Equity bridge financing<\/span><\/li>\n
  3. IPO bridge financing<\/span><\/li>\n<\/ol>\n\n

    1. Debt bridge financing<\/span><\/h3>\n

    The first type of bridge funding that small businesses may consider comes in the form of a bridge loan. Bridge loans are normally short-term and come with high interest rates (compared to other types of <\/span>business loans<\/span><\/a>). Business owners need to be careful when considering bridge loans since the interest rates can be very high (15-24% is not uncommon), which can lead to more financial issues as opposed to fixing them.<\/span><\/p>\n\n

    2. Equity bridge financing<\/span><\/h3>\n

    If your small business needs to overcome a financial gap, you may want to avoid incurring debt. In that case, equity bridge financing provides a bridge funding solution that offers investors equity in your business (as opposed to offering lenders repayments with interest).<\/span><\/p>\n\n

    Of course, investors will determine whether or not to provide a given business with bridge financing based on the likelihood of that business becoming profitable. Owners should also be cautious about pursuing this route towards bridge funding, as they\u2019ll be turning over a portion of control to outside investors who may want to make big changes to the company.<\/span><\/p>\n\n

    3. IPO bridge financing<\/span><\/h3>\n

    Are you familiar with the <\/span>IPO process<\/span><\/a>? The process of \u201cgoing public\u201d with an Initial Public Offering (IPO) can take its toll on your business\u2019s funds. For that reason, there\u2019s a third type of bridge funding known as IPO bridge financing. As you may have already guessed, this form of bridge financing is meant to cover the costs involved in the IPO process.<\/span><\/p>\n\n

    Similarly to other bridge funding options, this is typically a short-term loan. IPO bridge financing is then paid off with the cash brought in from the shares sold.\u00a0<\/span><\/p>\n\n

    \"Bridge<\/p>\n\n

    When should you use bridge funding for your businesses?<\/span><\/h2>\n\n

    The simple answer:<\/b> use bridge funding when you need quick access to funds that you\u2019re certain you can pay off quickly.<\/span><\/p>\n\n

    The detailed answer: <\/b>given the fact that bridge loans come with short terms and higher interest rates than other business funding solutions, it\u2019s in the interest of the borrower to repay the loan as soon as possible. Bridge financing, as pointed out above, is meant to bridge the gap between points of financial stability.<\/span><\/p>\n\n

    In other words, it\u2019s a temporary fix by definition and is designed to be an effective tool for businesses that will be able to pay off the debt quickly. If your business doesn\u2019t match that description and you decide to take bridge financing anyway, you might find yourself in a mountain of debt before you know what hit you.<\/span><\/p>\n\n

    Common situations where businesses may use bridge funding:<\/b><\/p>\n