Bridging loan for a real estate company or SME

Many companies ask us for a bridging loan

Very often, the funds are needed to acquire another property, especially by real estate companies. But first let’s start at the beginning, what is a bridging loan? In practical terms, a bridging loan is a short-term (or even very short-term) loan that may be or may not be secured by an asset, such as a receivable waiting to be collected. The main purpose of this solution is to provide an immediate cash injection without having to wait for the expected inflows to be collected.

A bridging loan is suitable for companies of all sizes

And it makes it easier to obtain sometimes large sums of money that can be used for:

  • Paying suppliers, or even to negotiate prices thanks to faster payment.
  • Financing the company’s operating costs while waiting for the expected collection.
  • Or simply to avoid working on a tight schedule thanks to a cash injection.

How does it differ from a “conventional” loan?

A bridging loan differs from a “conventional” loan in two respects: the duration of the loan and whether or not an asset is pledged as security. Combined, these two elements often allow the company to obtain a highly advantageous offer. A real estate company that owns a property and wishes to invest in a new real estate project can at any time use second-lien financing thanks to the bridging credit. This second-lien financing is very popular because you pay the interest quarterly or bi-annually and the repayment is made at the end of the contract. Amounts can vary from CHF 500,000 to CHF 10,000,000, with flexible terms of 6 to 36 months.

So why is it worthwhile for an SME to use a bridging loan?

The advantage for a company that owns a property is that it can pledge part of the estate as a collateral (e.g., as a second lien). The cost of a loan is directly dependent on its duration, so opting for a short-term bridging loan minimizes the interest payable. As the loan is secured by an asset (property, securities, receivables, etc.), the risk is minimized, resulting in a more favorable interest rate. Depending on the collateral (amount of the claim, value of the property or securities, etc.), it is possible to obtain higher amounts. It can also be interesting to use the services of a bridging loan provider such as PrestaFlex. This will allow you to obtain an offer without having to involve your bank (your banking relationship remains intact), but also to use, instead, an alternative or “crowdlending” type of solution to benefit from often more advantageous conditions.