When your business needs money a commercial bridge loan may seem like a brilliant idea, but it could cause more harm than good.
When you are getting into business or just trying to keep one afloat, you need money. You may not care where it comes from, but if you are not careful, you may end up accepting terms that are just going to harm you in the long run.
The $500,000 that guy your Uncle Vinny knows will come in handy as you wait for your next round of financing to come through, but can you really afford the interest he’s going to charge?
Not to mention what may happen to you if you miss a few payments…
Typically, when a business is in need of cash so it can make it till the next round of financing comes in it will apply for a commercial bridge loan from a bank, private equity firm, or credit union. However, while it may seem like a good idea at the time, you may find it does more harm than good.
Pitfalls Of A Commercial Bridge Loan
Surely receiving the necessary infusion of cash so your business will stay open can only be seen as a good thing, right? On the surface, yes, but below the surface, it can change the very future of the company.
Initially, you thought you would be fine with the financing you had, so you conducted business without fear and made decisions with nothing but forward progress in mind. But your concept did not take off as soon as you had hoped. Now you are running out of money, can’t make payroll past next week and have more bills on your desk than you can count.
As far as new investors are concerned, you haven’t really proven your concept, but as long as you can keep your doors open, you will. So you apply for and get approved for a commercial bridge loans. You get it, but you only get enough to cover the bare minimum. If anything goes wrong, you may find yourself in need yet again.
So rather than conduct business as usual, you become overly cautious and even a little timid. Rather than make decisions like you always have, you start to cut corners. You are thinking you are saving money, but what you are doing is compromising your business.
A Commercial Bridge Loan May Not Be Right For You
It may appear that you are trying to safeguard your business from risk, but what you end up doing is not take the risks that made your business a success in the first place. You may skip a conference where you would have made some great contacts or met new clients. You may delay rolling out a new model or some important modifications. As your decisions become more cautious, the mood within the company goes from ‘confident entrepreneur’ to ‘too frightened to move,’ and you and your business are now doomed to fail.
So before you decide to apply for a commercial bridge loan, make sure you think the decision through completely before doing so.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.