The concept of a bridging loan seems simple and could be the perfect loan that you need while you are waiting for your old business to be sold and you are already trying to acquire a new one.
This kind of loan is usually associated with mortgage. When you plan to buy a new house but your old house has not sold yet, you can use this loan first up until the old house has been sold.
This loans is typically from 6-12 months. The computation depends on the repayments done and the amount of time spent before the loans was repaid. As long as you keep paying the loans, this will reduce the total amount on the basic loan. You won’t know how much time you have to wait before you old business is sold and you don’t want to be burdened later if you wait until that time comes.
The biggest risk is that you might end up overestimating the price of the business that you are about to sell. Once it is sold, the price could be disappointing. Imagine if you have already bought the new business. Even if you pay the entire amount you’ve gained from selling your old business, it will still be not enough.
Another potential risk is that you might not sell your business within the bridging period. Once the date has arrived, the interest rate could increase drastically. This could be added pressure and you could even end up lowering the value of the old business just so you can sell it immediately.
Important considerations in getting bridging loans
In the end though, if you think this type of loan is beneficial, you should push for it. The first thing to do is to study the market. Find out how long businesses like yours are sold. If so, how much is it sold? You should also consider the time it takes before you are ready to sell your business. You still have to prepare it well for selling or else it won’t be enticing to potential buyers.
Another thing to do is make negotiations. Perhaps, the business you are planning to buy does not have to be paid in full right away. While you are running the business, money could already start pouring in and this can be used to repay the cost. You won’t have to worry about repaying the bridging loans anymore since you have another income source.
In the end, you should think hard if you will get this loan or not. You should even consider if the business you have is worth selling and the business you plan to buy is worth buying. Study all possibilities first before you make up your mind. You can also get help from us when it comes to selling and buying businesses.