Imagine you are a small company providing electrical contracting in the United States. You are losing...

Imagine you are a small company providing electrical contracting in the United States. You are losing money on several jobs bid before the steel tariffs affected the cost of electrical conduit. Although you can account for increased costs in future projects and possibly even offset your current loses by including a greater profit margin, in the short term you need a bridge loan to carry operating expenses.

How will you approach lenders and what type of assurances do you think will entice them to provide the loan you seek? Are there alternative sources beyond banks and venture capitalists?

Expert Solution

First you need to understand the concept of bridge loan, it is a sum of money lent by a bank to cover an interval between two transactions, losing money/increased costs on one side of the company and receive greater profit margin on other side. When that company have no money with it to produce at increased cost they need bridge loan to produce goods and cover that loan by selling those goods in near future with higher profit margins.

There are many lenders available in the market who provide money to many needy people at a specific interest rate. If you need a short term loan you approach these lenders by approaching them with your balance sheets and show them that you are in a loss for short term and will recover it in near future. Lenders will lend you money in exchange of some assurance by you. The assurance could be any thing whose monetary value is greater than your loan amount, so that if you do not repay the loan, lender can cover that cost from it. Assurance could be property papers, gold, car papers, goodwill etc. If all papers are correct which you have submitted for assurance, lender will check your past records if you have borrowed money and paid it back on time or not. This borrowing and paying back tells your Cibil score, which comes in place when you take a loan.

No i cannot think of any source beyond banks and venture capitalist, they provide you loans when you need it in exchange of some assurance.

Rahul Sunny answered 1 year ago

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