Loans are a part of life for many of us right now. In a world of economic strife and financial hardship in the wake of the pandemic, it makes sense that debt is also a fairly common aspect of our daily lives. It can leave a person wondering what may come next, and how they could possibly overcome such an onerous yoke.
Are there ways to surmount debt? That’s what we’re here to examine today. Namely, we’ll be looking at refinancing – what it is, how it works, and why it may be worth pursuing. Just keep in mind there are a few different types of refinancing, such as mellomfinansiering, so it can be helpful to understand that.
Additionally, bear in mind that this phrase, also known as intermediate financing, isn’t only applicable when it comes to refinancing. Rather, it can also refer to a temporary loan. We’ll be delving into all of that, as well as what the distinctions mean for us as consumers, in today’s article. Make sure to continue reading if any of that sounds appealing!
What is Intermediate Financing?
To start, let’s examine this concept on a basic level. It can seem quite simple at first, but keep in mind there is a lot brewing beneath the surface. With that in mind, what’s the basic definition that we’ll be using?
Simply put, intermediate financing refers to a type of financing that is used as a temporary or short-term solution to some sort of economic need. Admittedly, some of that can be gleaned just from the phrase itself. The most important aspect of this definition is the “temporary” part of it.
As you can probably imagine, there are a few reasons that a person (or a business) may want to get a credit agreement like this. In fact, this sort of financing is quite often used by businesses that are in the process of raising capital or undergoing some sort of major financial transaction. Of course, that’s not the only reason, but we’ll delve into that a bit further later.
Why Get an Intermediate Loan?
As we’ve hinted at already, there are plenty of reasons that a person may want to pursue a loan like this. We’ll be covering some of these in detail now if you’re keen to learn more about this.
Bridge Financing: This is the primary purpose behind them, as we mentioned earlier. You see, intermediate financing can help to bridge the gap between an initial funding stage and securing a more permanent source of financing. Naturally,this can be quitehelpful when a business needs immediate funds to support operations or growth but is in the process of securing a larger loan or investment.
Capital Raising: Again, we’ll be focusing a bit more on the business side of things here. This type of credit agreementhas the potential to be utilized as a way to raise capital quickly (and meet short-term funding needs) without needing to resort to long-term debt or equity loans.Thankfully, this can be useful during times of rapid growth, expansion, or even for unexpected expenses.
Mergers and Acquisitions: Unforeseen circumstances (and foreseen ones, for that matter) can often take a toll, and that includes when a merger or acquisition happens in a business. Overall, these types of loans can be used in M&A transactions in order to bridge the gap between the time of the acquisition announcement and the actual closing of the deal. This can aid with funding due diligence, integration costs, and any other expenses associated with the transaction.
Working Capital Management: Now, something that most business owners know is that there are fluctuations in financial needs and stocking needs. It makes sense, then, that funding like this can be used to manage seasonal variations in cash flow, inventory buildup, or delayed payment cycles. Generally speaking, it can provide flexibility in managing day-to-day operational needs without needing to rely solely on long-term sources of funding.
Risk Mitigation: This is the final aspect of this that we’ll be covering for now, though you can read further on these topics on this page: https://www.econstor.eu/bitstream/10419/195300/1/1011385686.pdf. You see, these loans can help lessen risks associated with delays in securing permanent financing or even unexpected cash flow disruptions. They provide a cushion of sorts to cover short-term funding gaps and help to ensure that the business has the required resources to continue operating smoothly.
How Do These Loans Work?
To a certain extent, the process for these credit agreements will be similar to other loans. However, there are a few things to keep in mind throughout. Notably, it could look a bit different if you decide to use one of these loans in order to help finance purchasing a home while you wait for your prior property to sell.
This could include needing to show proof of ownership and authenticity of the funds you’ll eventually be receiving. Considering that it can be difficult to sell a home sometimes these days, most lenders will be more than willing to work with you on these issues.
With that in mind, let’s explore the basics of how it works first! Intermediate financing works by providing businesses or individuals with temporary or short-term funding to meet a specific financial need until a more permanent financing solution can be obtained. Typically, this involves using various types of debt or equity instruments to bridge the gap between the initial funding stage and a longer-term financing option.
Identification of Need
Most of the time, the first step will be to identify what your specific need is, whether you’re in the middle of a move or you’re a business experiencing anything that we’ve discussed thus far. When working with a lender, this could include explaining any working capital requirements, financing for a specific project or expansion initiative, capital for an acquisition, or funding for a major transaction.
Making a Choice
Next, you’ll need to decide which intermediate financing option you want to go with, since there are a few different types available. Typically, it’s a good idea to talk this over with a trusted financial advisor as well as your lender to ensure that the transaction goes smoothly, and to help make certain that you’re working in your own best interest.Some options are bridge loans, mezzanine financing, convertible debt, venture capital, or other types of short-term funding sources that are suitable for thespecific situation.
Application and Approval
Whether you’re applying as a business entity or as an individual, you’ll need to submit the proper paperwork and documentation. This will likely include some sort of proof of identity, proof of income, and the like. When taking out a loan as an individual, the lender will also look at your credit score to ensure that you are creditworthy.
If everything goes to plan, ideally your lender will approve the loan. The turnaround time varies based on the financial institution, so keep that in mind. In emergencies, it’s best to clarify that there is urgency when submitting the application.
Repayment and Exit Strategy
Obviously, once you are approved for the loan, then the lender will disburse the funds to you (or your business). What comes next is a bit trickier, though, so we’re dedicating this final section to it. Making the repayment and sorting out an exit strategy is important as you gradually make the transition to long-term funding options.
At the end of the day, intermediate financing arrangements typically have a defined repayment structure and timeline, in addition to an exit strategy for that transition to a more permanent source of funding. The business or individual will need to repay the short-term loan according to the agreed-upon terms or convert the debt into equity if applicable.
If you aren’t sure what that will look like in your circumstances, consult with your lender. They should be able to guide you through the process and explain what the timeline will be in your case. Remember – if you’re waiting on a real estate sale, they’ll typically be willing to work with you and figure out options!
