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My small business (not really a startup) has used bridge loans responsibly and very effectively. One area where they're quite useful and common are when you hav

My small business (not really a startup) has used bridge loans responsibly and very effectively. One area where they're quite useful and common are when you have inventory you want to finance, often in a burst or when a sudden demand shock hits and speed is of the essence. (We currently have a large rotating LOC with a bank, but this is not always practical when you're a startup/small business getting going) Paying tons of cash out the door to buy inventory to meet demand over X days while it sits in your warehouse is very often less efficient than paying even ridiculously high APRs on bridge loans. Cash flow is a consideration just as raw ROI / profit margins are, especially for smaller businesses. Yes, many bridge loan issuers are preying on uninformed / underbanked people. I won't deny that. But in the small commercial space, bridge loans are used effectively, responsibly, and regularly without abuse - especially for those carrying hard inventory.

alberth 4y ago
Maybe I’m misunderstanding but what you’re describing sounds a lot like a “credit line” to address cash flow issues. But what Fred is describing is financing to bridge to either a liquidation event or another around of funding.
- Animats 4y ago
  That's similar to factoring, where you're borrowing against your inventory. Common in apparel.
- 1123581321 4y ago
  Bridge loans are able to be underwritten at better speed/size/rates than credit lines, all else equal. That’s not taking away from your main point about the article.
  - icelancer 4y ago
    Yeah, this is the main thing for sure. Not rates in my experience, but speed, yes.
- icelancer 4y ago
  We have a credit line now, but often times if you're a new-ish business, banks aren't too keen on giving you one (especially if you are cashflow negative). So sometimes you have to go to places like Kabbage or other pseudo-payroll lender type places who charge insane APRs for short-term bridge financing. Functions pretty similarly, except one is a reputable business (banks... well, kinda reputable) and the bridge loan shops tend to be pretty maligned (and often reasonably so).

alberth 4y ago

Maybe I’m misunderstanding but what you’re describing sounds a lot like a “credit line” to address cash flow issues. But what Fred is describing is financing to bridge to either a liquidation event or another around of funding.

Animats 4y ago
That's similar to factoring, where you're borrowing against your inventory. Common in apparel.
1123581321 4y ago
Bridge loans are able to be underwritten at better speed/size/rates than credit lines, all else equal. That’s not taking away from your main point about the article.
- icelancer 4y ago
  Yeah, this is the main thing for sure. Not rates in my experience, but speed, yes.
icelancer 4y ago
We have a credit line now, but often times if you're a new-ish business, banks aren't too keen on giving you one (especially if you are cashflow negative). So sometimes you have to go to places like Kabbage or other pseudo-payroll lender type places who charge insane APRs for short-term bridge financing. Functions pretty similarly, except one is a reputable business (banks... well, kinda reputable) and the bridge loan shops tend to be pretty maligned (and often reasonably so).