Small businesses could rely on bridge loans for coronavirus downturn
With small businesses feeling the financial scourge of the coronavirus, bridge loans could be the direction they turn to keep things afloat.
As people practice social distancing and quarantining during the COVID-19 outbreak, 2020 is shaping up to be a tough economic year. Across the country, events have been canceled, gyms and bars shut down, and restaurants limited to takeout only. The pandemic could cause a near-term increase in bridge lending to help curb potential losses.
"I do think we'll see more loan demand right now," Ben Gold, president of QuickBridge, said in an interview. "And I think here for us specifically, we'll see a better quality credit than we normally would. But the more interesting tests will be like two months from now, hopefully once the dust is cleared a little bit and things are like starting to get back to normal, what demand looks like at that time."
QuickBridge specializes in six-month loans that get small businesses to where they need to be when something unexpected happens.
"We try to use this concept called matching maturities where if you've got six month projects, we want to give you a six month loan so that you're not paying interest on money you're not using."
Worries of defaults or foreclosures mount in the face of financial struggle. Some cities, like Los Angeles, already placed a moratorium on evictions, but it remains to be seen if that will graduate to the federal level or if lenders will treat the crisis like other natural disasters and allow their borrowers forbearance.
"Specifically for us in our business, we're on a case-by-case basis," said Gold. "I just had a customer that reached out. He runs a retail business and was concerned he was symptomatic. Absolutely in a case like that we'll just pause payments for a little bit. One good thing about our business, because of the short term nature of the money, we get feedback really quickly from customers. So we can be out ahead of it."
The coronavirus brought an economic side effect of falling interest rates, which drove a surge in demand for refinances. Refinancing could also be a lever small businesses pull to boost liquidity during this cash-strapped period with their revenue running leaner and leaner.
"A lot of small business owners are homeowners, too. So the fact that they do have equity in their home and they have that ability to go refinance gives a lot of comfort to guys like us," Gold said.
While Gold said he would offer flexibility on a case-by-case basis due the virus, bridge loans typically carry higher rates and some lenders can be inflexible when it comes to late payments after the loans' short terms end.