Having an idea for the implementation of investments with the support of funds, it may turn out that before we receive them, it will be necessary to support a lot of funds to start work on the project. To enable this, the offer of bridging loans has been introduced to our market. How to enlist them? We write about it below.
What is a bridging loan?
It is a solution that helps in the implementation of the investment, which is to be implemented with the help of a grant. This product then allows you to maintain financial liquidity until the implementation of the project, and then receive a refund. Banks have various offers for this type of financial support. Some pay out the loan in full, while others in parts of the so-called tranches. The advantage of a bridging loan is the fact that it can be obtained in a much simpler way than with typical investment loans. In addition, the collateral will be the assignment of rights under the co-financing agreement, but you must attach a blank promissory note to the borrower. For a bank, this is usually a safe solution, because it is secured in advance and covered by an subsidy. The borrower is also in a fairly favorable position,
Advantages of a bridging loan
Among the many advantages of a bridging loan, we will list the most common, which always occur:
- With the help of a bridge loan, it is possible to implement the project with up to 100% investment costs.
- We are sure that part of the loan will be repaid from the grant
- A low interest rate is an undoubted advantage
- There is often no commission for early repayment
- There is a grace period for paying back capital up to 1 year.
It is worth analyzing various offers of banks, and there are many, because this type of financial support can be a huge support in the process of implementing the investment, which we have already carefully planned. Usually these types of products have a transparent structure and clear repayment rules. Therefore, knowing the stages of the implementation of our project in terms of financing, we will be able to safely plan its implementation by using the funds from the bridging loan.
What are the conditions to get a bridging loan?
Not only the entrepreneur, but each beneficiary of the grant may apply for such financial support, and it may be, for example, a farmer, but also a local government unit or a public institution. If it is an entrepreneur, he must pay particular attention to his credit history. If it is too low, despite the subsidy received, for early financing with a bridge loan, there is nothing to count on. Returning to the procedures, however, you must apply for a bridging loan sooner, preferably before receiving the grant. And at the latest after the formal signing of the contract with the institution that is responsible for the allocation of funds. To be able to apply for such a loan at all, you must prepare and present a carefully prepared business plan. On its basis,
How much does a bridging loan cost?
Talking about costs is never a simple and obvious matter. As many banks and offers, as many cost proposals as they contribute. A good practice is the fact that we can individually negotiate the terms of interest rate and other costs of the bridging loan, precisely because of the security the bank is covered by – because the funds allocated for the investment will actually go to it. The frequency of interest repayments remains to be determined, however, due to the large loans, mostly applied for, the offers we can negotiate can be very attractive. Let’s pay special attention to prepare a business plan very carefully and estimate with the help of a professional all costs to apply for funding at the level that is necessary, and not beyond the state.
What to look for with a bridging loan?
If we decide to implement the investment with the support of a bridging loan, without mobilizing our own funds, remember to carefully analyze the offers on the market and meticulously learn the details contained in the proposed contracts. Because it may happen that some banks may offer an investment loan together with a bridge loan, which is much more expensive due to the high interest rate, in some way related to the risk incurred by the bank. A reliable business plan and good credit history are the basic elements that we should focus on when planning investments. Of course, we can take care of your credit history long before you plan your investment, but we wrote about it in a completely different material and we encourage you to reach for it.