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A company can bridge its short term financial needs by obtaining over draft from banks, working capital finance from banks and directors loan.
Bridge Loans
Bridge financing is to be used as a "bridge" to permanent finance. In a construction project, where the client needs funds to acquire the land, to develop the plan, or to start the construction while waiting for the construction loan to be approved, a short term finance like a bridge loan is necessary. You may also need a bridge loan when you unexpected lose a source of funding but still need money to close a transaction.
Mezzanine Loans
A mezzanine is similar to a bridge loan except it usually comes in a second mortgage or equity position. It is a hybrid of debt and equity financing which can be used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies. The mezzanine lender looks at the individual project and other factors so they can feel comfortable to take a higher risk position. Most condo conversions use mezzanine as the primary finance option. Since mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower, this type of financing is aggressively priced with the lender seeking a return in the20-30% range. Mezzanine financing may be right for you since it is treated like equity on a company's balance sheet and may make it easier to obtain standard bank financing.
Hard Money Loans
Hard money is the most well-known form of short-term funding. It is equity driven. A hard money lender will lend typically up to65% of the appraised value. Investors use hard money to acquire run-down properties, mismanaged buildings with poor cash flow, buy and flip type of transaction, restructure business, or simply deals that other lenders do not want to get involved in.
Sources of short-term finance are : -
1. Bank Over-Draft
2. Accounts / Notes Payable.
3. Short-term loan from directors.
Repayment of funding and benefits are supposed to be operating income Ay the duration of the credit facility or a capital increase
Short term finance can be bridged by -
Over draft
Discounting Bills Receivable
Short term Loan
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