Bridge loans and hard money loans are short term funds. These funds can be used to bridge the gap between your need for money to close pending investments, to finalize long term financing packages and to pay bills. Entrepreneurs have the freedom to visit banks for their monetary needs. However, banks provide loans to business owners with solid cash and a steady flow of income. Above all, the loan is provided to cover 60, 90 or 120 days. Bridge loans are provided with many factors in mind. For instance, the borrower should be able to provide front-end cash. However, its flexible and accessible nature increases its rate of interest.
Using Bridge Loans
Equity investors have the freedom to use bridge loans. If an important equity funding process or deal is pending for a very long time, these loans can be used to close them. Bridge loan financing comes with convertible notes that will let you pay the interest first or combine both the principal and interest. The conversion option is determined by the lender and your need. If the borrower’s profit margin increases with time, they will be able to finish the loan quickly. This cuts down on the money paid.
Letter of Intent alias LOI
So, how do companies that need an immediate source of money work? What do companies without a future equity deal do? Do these organizations qualify for the bridge loan? Certainly yes! Business owners can make use of “Letters of Intent alias LOIs” to frame short term monetary loans. Such deals require lots of face-to-face confirmations and predetermined policies. Of course, LOIs are not concrete binding contracts. If a bridge loan deal is signed and the borrower fails in their proposed investment, the lender doesn’t have the freedom to recoup payment in accordance with the LOI. These are extreme conditions that don’t promise a solid foundation for secure bridge loans.
Money & Deal
On the whole, bridge loan investments are all about money and deals. If you are lucky, you will be able to establish a firm business without any money! Voila, many real estate investors begin their ventures with minimal payment. They fund up their businesses with time. And, bridge loan lenders spend lots of time finding, making deals and learning different aspects of equity capitals. After all, they are meant to make the most out of equity deals!