Bridge Financing with SyntheticFi

What is a Bridge Loan

A bridge loan is a short-term loan used when you need to make an urgent payment but you're strapped for cash. Although this is not always the case, corporate credit cards can be used as a form of bridge financing: for instance, a clothing store might not have sufficient cash in their bank accounts to pay a $20K supplier invoice to secure inventory. Instead, they pay with their corporate credit card, effectively borrowing the money temporarily, and paying it back at the end of the month after they've sold the newly-acquired clothing. So a bridge loan "bridges" the gap between immediate cash needs and future cash flow.

SyntheticFi Loans - Fast and Flexible Bridge Financing at Low Costs

Many expenses in life that can't be met with a credit card, e.g. putting a down payment on a home, or paying a tax bill. For these situations, SyntheticFi allows you to borrow against your non-retirement investment portfolio and bridge the gap:

• Low Interest Rates: SyntheticFi offers the lowest interest rates in the industry, with fixed-rate loans as low as 3.8%. (Our latest rate quotes are available here.) This could potentially save you thousands, if not tens of thousands. Traditional bridge loans often have higher rates due to their short-term, high-risk nature.

• Portfolio Keeps Growing: SyntheticFi allows you to borrow against your securities without selling them, thereby keeping you fully invested in the market so you continue to build your wealth.

• Tax-Advantaged: By avoiding liquidation of your portfolio, you avoid capital gains taxes on appreciated assets. Furthermore, the interest payments on a SyntheticFi loan are tax deductible—with no limit—against any capital gains taxes you do accrue throughout the loan term.

• Asset-Based Eligibility, No Credit Impact: For people with unconventional or variable income (e.g. self-employed individuals) or high debt-to-income, qualifying for a traditional bridge loan can be challenging, while hard money loans can be extremely expensive. SyntheticFi's lending is based solely on your investment portfolio rather than your income or debt levels.

• Fast Funding Cycle: Speed is critical for bridge loans, especially with real estate transactions where closing timelines are tight. SyntheticFi doesn't require the movement of assets for many brokerages so we can provide funds in as little as one week for eligible accounts.

• Flexible Repayment: Our line of credit lets you draw funds as needed and repay them partially or fully anytime, without penalties, offering flexibility especially for uncertain repayment timelines.

Buying a New Home

One of the most common uses of bridge loans is to buy real estate. Say you are looking to buy or build a new property. You may need temporary funds before you receive proceeds from selling an existing property. The need to borrow may already be part of your plan or it may be prompted by a sale that falls through, or a closing that is delayed.

Tony is looking to buy a new home in Menlo Park, priced at $2MM. At the same time, he's posted his existing home for sale, at a ticket price of $1MM. Tony was hoping to sell his current home before closing the deal for the new home, so he would have the cash he needed for the $400K down payment on the new mortgage. Tony's real estate agent had a buyer lined up for his current home, but they backed out at the last minute, and now Tony is 1 week away from the closing deadline for the new home.

Fortunately, Tony's worked at Apple for the last 7 years, and through a combination of employer stock grants and wise investments, he's grown his portfolio to $3MM. As a SyntheticFi client, he can quickly borrow the $400K against his assets at a favorable interest rate of 4%. This way, Tony closes his new home on time. In 3 months, he manages to sell his old home, paying back the $400K principal and ~$4K in interest, all while keeping his investment portfolio intact.

Alternative: Instead of borrowing funds with SyntheticFi to cover a mortgage down payment, Tony can finance the entire purchase of the new home with our lending solutions. This article explains how and the several benefits over a traditional mortgage.

House Flipping

House flipping involves purchasing properties, renovating them, and selling them quickly for a profit. SyntheticFi can be used to finance both the acquisition and renovation costs in these situations. The flexibility in closing the loan is critical, because the exact timing of the sale post-upgrade can be unpredictable.

Tony, an experienced real estate investor, spots a fixer-upper in Palo Alto listed at $1MM, estimating $100K in renovations to transform it into a modern family home. He expects to sell it for $1.35MM after upgrades. Using a SyntheticFi Loan, Tony secures the $1MM (at 4% interest) with minimal paperwork, funded in just one week. Structured as a line of credit, the loan allows him to draw an additional $100K over 6 months to cover renovation costs, including new flooring and a sleek kitchen remodel with quartz countertops. Halfway through the project, Tony decides that he wants to install energy-efficient windows to appeal to eco-conscious buyers. So he decides to pull another $50K from his line of credit to purchase materials and hire a local contractor.

After completing the renovations in 6 months, Tony lists the property and sells it for $1.375MM within two months. He repays the $1MM principal, $150K renovation draws, and approximately $30K in interest (at 4% over eight months), pocketing a $195K profit.

$30K interest ~= 4% rate * (3 months / 12 months) * $1.1MM + 4% rate * (5 months / 12 months) * $1.15MM

(This is an approximation. Actual interest would depend on when draws are made and involve compounding calculations.)

If the sale had taken longer due to market fluctuations or delays in finding the right buyer, SyntheticFi’s no-penalty repayment flexibility would have ensured no additional costs, giving Tony peace of mind throughout the process.

Business Loan Substitute

Businesses often face cash flow gaps when waiting for revenue from sales, invoices, or funding rounds. Traditional business loans can be expensive, with high interest rates and lengthy approval processes. SyntheticFi offers a cost-effective and rapid alternative for businesses needing short-term financing.

Sarah owns a tech startup in San Francisco and has secured a $500K contract to deliver software to a major client. However, she needs $200K upfront to hire additional developers and purchase cloud server credits to meet the project deadline in 3 months. Her startup’s revenue is still ramping up, and traditional business loans come with interest rates as high as 10-15%, plus weeks of paperwork.

Sarah has a $1.5MM investment portfolio from her previous stock options. Using SyntheticFi, she borrows $200K against her portfolio at a 4% interest rate, with funds available in just one week. Over the 3 months, she deploys the funds as needed to make progress in building and operating the software. After delivering the project, Sarah receives the $500K payment from her client, repays the $200K principal and approximately $2K in interest.

By choosing SyntheticFi over a traditional business loan, Sarah likely saved $3K-$5.5K in interest, while avoiding the hassle of prolonged loan approvals, enabling her to focus on building her product and business.

Meeting a Capital Call

In private equity or venture capital, investors often commit to contributing capital when called upon by fund managers. SyntheticFi Loans provide a solution for meeting these capital calls when immediate liquidity is not available. If you've decided to invest in such a fund, you can fulfill your commitment without selling other assets, which could trigger tax liabilities or disrupt long-term investment strategies.

Priya, a seasoned investor, commits $500K to a venture capital fund focused on AI startups. Knowing that capital calls can occur with short notice, she proactively opens a SyntheticFi line of credit against her $2MM investment portfolio when she signs the fund agreement. This ensures she’s prepared for future calls without needing to liquidate assets. 6 months later, the fund issues a $300K capital call to invest in a promising company, with payment due in 10 days.

Using her pre-established SyntheticFi line of credit, Priya draws $300K at a 4% interest rate, and the funds are available in just one week, allowing her to meet the capital call deadline. Her portfolio generates monthly dividends averaging $2K, which she uses to cover the recurring interest payments (approximately $1K per month at 4% on $300K). 

18 months later, the fund makes a distribution of $400K to Priya following a successful portfolio company exit. She uses this to repay the $300K principal. By planning ahead with SyntheticFi and using dividends for interest, Priya avoids selling appreciated securities, which would have triggered significant capital gains taxes, and preserves her diversified portfolio.

Covering a Tax Bill

A large and unexpected tax bill, whether for you or your business, can strain cash reserves. SyntheticFi Loans offer a way to immediately cover these urgent expenses without liquidating any investments.

Emma, a small business owner in Austin, receives an unexpected $150K tax bill from the IRS due to a reassessment of her company’s previous year’s earnings. The payment is due in 30 days, but her business’s cash reserves are tied up in inventory and upcoming payroll, and she doesn’t want to sell assets from her $1MM investment portfolio, which would trigger $30K in capital gains taxes.

With the help of SyntheticFi, Emma borrows $150K against her portfolio at a 4% interest rate. The funds are available in her account within a week, which she uses to pay down the tax bill before the deadline, avoiding penalties. Over the next 6 months, her business generates sufficient cash flow from new sales, allowing her to repay the $150K principal and approximately $3K in interest (4% over 6 months on $150K).

By using SyntheticFi, Emma avoids liquidating investments, saving on capital gains taxes and maintaining her portfolio’s growth, while gaining sufficient liquidity to address the emergency. The flexible repayment terms also put Emma's mind at ease during the repayment period, so she doesn't worry about another deadline!

Conclusion

If you have an urgent need for financing, but don't have the liquidity at the moment, instead of selling your investments, SyntheticFi lets you borrow against them—quickly and cheaply. Our interest rates are best-in-market and whether you need cash to close on a real estate purchase or to pay for some other urgent expense, you can acquire the borrowed funds to meet any time-sensitive transaction. Moreover, you don't have to plan for a rigid repayment scheme. Our line of credit solution gives you the flexibility to repay how and when you want. If you're interested in using SyntheticFi for your financing needs, you can book a call here.