From the September 26, 2003 print edition
From My Perspective

Bridge Loans Help When Capital Is Needed Quickly
By Marc Porter

They're one of the financial world's best-kept secrets.

You need money to run your business, and you need it fast. As in yesterday, if not sooner. Then you hear of a way to get short-term financing, without the red tape, without reams of paperwork, without the weeks and weeks of waiting: A bridge loan.

Sound too good to be true? It isn't.

Bridge loans have only been around for a few years, but they're quickly gaining in popularity as an excellent alternative to conventional bank loans.

Never heard of them? Then you may be missing out on a viable, financial option for time-sensitive transactions such as real estate acquisitions or emergencies such as a bankruptcy or foreclosure.

Quite simply, bridge loans offer short-term, asset-based financing until more permanent financing can be secured.

They're an excellent alternative to conventional bank loans, because they can be finalized quickly, a crucial benefit when you want to secure a favorable acquisition with cash, start a business, repair a storm-damaged building before an insurance settlement, or prepare for a public offering.

How quickly are we talking? Whereas conventional financing usually takes 60 days, most bridge loans can be closed in two weeks.

Quite a difference in today's fast-paced competitive marketplace, where ready cash can mean the difference between a closed deal and a missed opportunity.

Now for the nuts and bolts. Bridge loans typically range between $100,000 to $5 million and terms can range from 90 days to 24 months.

To begin, you'll need a recent appraisal of your collateral, although an appraisal isn't always needed to obtain a verbal commitment.

Acceptable collateral includes publicly traded stock, real estate, machinery and equipment, royalties and account receivables. (About 90 percent of bridge loans use real estate as collateral.)

All loans are based on a loan-to-value ratio, up to 65 percent of the quick sale value of the collateral, with raw land and empty buildings limited to less.

The borrower typically pays points as origination and underwriting fees. In some cases, interest, fees and points can be included in the loan.

Helpful in booms, busts
People often learn about or consider bridge loans in times of trouble. And indeed they are ideal for a laundry list of adversities, including impaired credit, borrower distress, foreclosures, tax liens, bankruptcies, debtor-in-possession, divorce settlements, partner disputes or buy-outs, litigation, blanket mortgages, tax liens and judgment payoffs, bank workouts, turnarounds, renovation and converŽsions, and re-structurings.

Yet bridge loans don't have to be just for distress situations.
There are many times when a business needs capital quickly, like when one company is looking to acquire another, purchase an inventory at a great price, or has a one-time need such as making a tax payment.

Simply Lite Foods Corp., a food manufacturer that makes dietetic candy, wanted to launch a marketing campaign to target retailers. A $300,000 secured-term bridge loan helped them do just that.

When Alabama's Midway Funeral Home was building a new funeral home, they came up short on the money to finish it. They were able to complete the project with the help of a $185,000 bridge loan.

So, the next time your business needs capital in a hurry, get creative with your financing and consider a bridge loan. It may be exactly what you need to bridge the gap between where you are financially and where you need to be.