With so much information being bombarded to us, it’s a blessing that our brains are equipped with a means to automatically and subconsciously filter what we receive and more importantly what we retain. But if there’s something that an entrepreneur and investor needs to consciously seek information about these days, it would be the commercial bridging finance industry. But why should we care?
Commercial bridging finance is a service, that as its name suggests, provides funds for commercial purposes. What sets it apart is its short term and interim nature which makes it very effective for immediate short term liquidity needs. What does this mean? A bridging loan is a funding option taken pending the arrangement of a bigger and permanent financing. We know how long it often takes to arrange cash and this pertains to both income and credit sources. This can spell trouble because many needs can be immediate with others even unforeseen, for instance emergency disbursements.
What commercial bridging finance does is bridge the gap created by the timing constraint so a transaction or need becomes viable as need be. Still confused? Allow us to apply it to a real-life setting in two ways as follows.
Case No. 1 – A shoe company received a massive order from a new client which would require it to acquire additional raw materials, labor and equipment on top of its usual production needs. The business then goes off to pool resources from its sales and retained earnings fund. Since these are big ticket and/or bulk purchases, they would often constitute a down payment. As production needs to start early for it to stay on schedule, the business may use a bridge loan to finance the down payment while it arranges for adequate resourcing.
Case No. 2 – A real estate investor wants to acquire a series of commercial assets to add to their investment portfolio. But this, as we all know, is both a complex and costly venture as pre-acquisition costs are very real. To avoid losing the opportunity to other interested buyers, the investor makes use of commercial bridging finance to provide for the initial costs of the purchase (e. g. security deposit, down payment, research costs, and professional fees).
In essence what the commercial bridging finance industry does is provide opportunities to people and organizations when they are in the midst of a time constraint between needs and funding.