Bridge financing is a method of financing, used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash. Bridge financing is commonly used when the cash flow from a sale of an asset is expected after the cash outlay for the purchase of an asset.
Bridge financing is
used by companies before their initial public offering, to obtain necessary
cash for the maintenance of operations. These funds are usually supplied by the
investment bank underwriting the new issue. As payment, the company acquiring the
bridge financing will give a number of stocks at a discount of the issue price
to the underwriters that equally offset the loan. This financing is, in
essence, a forwarded payment for the future sales of the new issue.
Bridge financing may
also be provided by banks underwriting an offering of bonds. If the banks are
unsuccessful in selling a company's bonds to qualified institutional buyers,
they are typically required to buy the bonds from the issuing company
themselves, on terms much less favorable than if they had been successful in
finding institutional buyers and acting as pure intermediaries.
There are two types of
bridging finance. Closed bridging and Open Bridging.
Closed bridging finance
is where you have a date for the exit of the bridging finance and are sure that
the bridging finance can be repaid on that date. This is less risky for the
lender and thus the interest rate charged are lower.
Open bridging is higher
risk for the lender. This is where the borrower does not have an exact date for
the bridging finance exit and may be looking for a buyer of the property or
land.
The surrender value or
cash value is the sum of money that an insurer pays to a policyholder when the
policy is terminated or surrendered before its maturity. It is the savings portion of policies such as
whole life and endowment.
Some policies, such as term
life insurance, do not have a cash value.
So when they are terminated, the customer gets nothing back.
Do note that the
surrender value is not the same as the face value, also known as the actual
death benefit, of an insurance plan. The latter is the amount that will be paid
to beneficiaries as long as the terms of the policy are met. The face value is
always more than the cash surrender value.
Policies with surrender
or cash value can be used as collateral for a loan, so policyholders can opt to
take a loan from the insurer by borrowing against the cash value of their
plans.
The cash surrender value is the sum of money
an insurance company will pay to the policyholder or annuity holder in the
event his or her policy is voluntarily terminated before its maturity or the
insured event occurs. This cash value is the savings component of most
permanent life insurance policies, particularly whole life insurance policies.
It is also known as "cash value", "surrender value" and
"policyholder's equity". This amount is net of any surrender charges
and outstanding policy loans and interest thereon.