Business Title Loans Vs. Bridge Loans: Which Is Better For My Small Business?Fast Action Finance
For small businesses, itâ€™s uncommon for financial crunches to happen every now and then. This often happens when investors or capitalists are yet to make a decision to fund or not to fund the business with capital. In fact, research shows that it takes up to a year for finance to be approved by investors. This means that these businesses have to look for money elsewhere as they await investorsâ€™ decision. As a result issues like shortage of money to pay staff and other business related expenses arise.
Why not traditional loans?
Small businesses have to look for alternative sources of money to keep them operational. Unfortunately, traditional loans may not always offer the convenience and efficiency that small businesses need. For one, the qualification process in most cases favors the largest business enterprises. The process is sometimes lengthy, thus taking more time than these businesses have. Moreover, they are sometimes more expensive, a factor which becomes a challenge if the interest rate exceeds the businessâ€™s budget.
If not traditional loans, what then?
The good news is that traditional loans are not the only source of money. There are avenues for getting money, including borrowing from friends and family. Short term loans are a fairly good option for entrepreneurs whose businesses are in a financial crunch. Depending on the eligibility requirements, repayment periods and other factors, there are various types of short term loans. These include payday loans, title loans and bridge loans. By far, the popularity of bridge loans and business title loans exceeds those of other short term loans among business owners. This begs the question, â€śWhich is the smarter choice?â€ť
What is a bridge loan?
A bridge loan refers to a short term loan that helps individuals or businesses to meet immediate expenses before a permanent financial solution can be found. As the name implies, they bridge the gap between financial requirement periods. Being short term loans, their repayment periods are at most one year and backed by collateral. They are commonly used by small scale real estate firms as there are time lags between the purchase and sale of properties. Bridge loans are also known as swing loans, interim financing or gap loans.
There are different types of bridge loans provided depending on the purpose they are intended to serve. The most common ones include commercial and mortgage bridge loans. Businesses will require bridge loans for various reasons, including to pay salaries and wages, hiring new staff, open new offices in new localities or even finance the purchase of new office equipment. For whatever reasons, a firm may require an immediate source of cash and taking out loans the traditional way may not always work. Meanwhile, bridge loans help to bridge that gap and help firms fund immediate financial requirements.
Bridge loans in the real estate are commonly referred to as hard money while in the private equity funding itâ€™s known as mezzanine loans. As these are only short term solutions, itâ€™s important that businesses ensure that the main source of funding is approved soon enough so that these short term debts can be paid off.
While they mature faster than traditional loans, bridge loans have a reputation of having high interest rates. In addition, the risks involved are more and could cost the business if the loan is not repaid in time.
What is a business title loan?
A business title loan refers to a title loan taken out by a business. A title loan, otherwise known as a vehicle title loan, is a loan backed by the title of a vehicle. In the case of business title loans, the car title provided to the lender belongs to the business. Like bridge loans, these are also short term loans.
While bridge loans will meet immediate requirements of the small enterprise, qualification criteria may pose challenges to business owners. This is where business auto title loans. They have a faster qualification process and the eligibility requirements are easier to meet.
Most lenders that provide bridge loans sometimes require a high monthly gross profit. Say for instance that the amount of gross profit required is $20,000. This may pose difficulties for several reasons. Like what if you are a startup firm? Or what if your business is seasonal and it just so happens to be during a slow period? How do you meet that monthly minimum gross profit? And whatâ€™s even worse is that the lenders will deduct a certain amount of the daily deposits, usually 10%.
On the other hand, the terms and conditions of business auto titles are completely different. There is no minimum gross profit required every month, and there are certainly no deductions made from your daily deposits. Moreover, unlike bridge loans that may take days to process, business auto title loans are processed faster, thus provision of funds in a timely manner.
Both bridge loans and business title loans have obvious benefits. And while bridge loans provide funding to pay for immediate expenses, business title loans in Toronto offer more convenience in terms of the processing time, repayment period, interest rate and are generally less expensive.