Bridging loans are meant to cover the funding needs for the duration during which the individual get another alternative source of funding. These often come with a higher interest rate laden on them. So before you take these loans ascertain your requirements and see to it that you do not waste the money you have taken into any other purpose but for just the needs you have.
These loans are offered for short term as well as long term depending on your requirement.
Short term loans: The bridging commercial loans which are offered for a period not more than a month come under this category. These loans are in no way similar to the individual loans taken as they differ in the amount under consideration and the approval process at large. However, these loans are taken by the companies for basically the purposes which include immediate needs for the urgent cash namely for the salaries of the employees or for the vendor payments. Mostly companies do not prefer to pay salaries to their employees using their cash reserves; rather they would take the short term loans for the purpose.
Many would wonder as to why the companies would take the burden of a loan when they are sitting on cash reserves. However, this is more because the companies find it better for their financial management. Most of the times companies never want to liquidate their investments for the meager or even the important expenses like the salaries of the employees. It is not that the companies do not have the requisite funds to pay the salaries of the employees but it is more because the finances can be better managed if the expenses are made by means of funding from outside.
Once the companies close their accounts at the end of the year and they prepare the balance sheet, the total interest paid on the loans will offset be offset by the total earnings which the companies have by means of the investments and the savings they make.
Any loans taken by the companies will always work in the benefit of them provided they continue on their profit making spree and go for a sustained business performance. Arbitrage of this kind by the companies often earns them the best of the advantages and they can always use the funds for their benefit.
Long term bridging loans: There are many occasions when the companies require bridging loans to meet their immediate financial requirements. These may be required to generate liquid funds at times and these will be used to meet their expenses related to expansion, diversification and sometimes for meeting the emergencies.
Huge loans are taken to meet the requirements which require a large amount of money to cater to them. If you have long term investments there are rare chances that the companies would like to dilute their investments to fund these requirements. In such cases companies prefer to use the liquid funds to meet the current requirements and they would keep their money parked for the future requirements.
These loans extend more than a month and up to a year. Lenders are more than willing to offer these unsecured loans to the borrowers because they have chances of earning greater profits on them. However, the borrowers too stand a greater chance of earning profits because they are always going to earn higher interest on the money they have keep safe and invested under different schemes.
it is always better to consider the reputation and the experience of the companies under consideration and the way they are going to charge you interest rates along with the terms and conditions applicable on the loans.