Real Estate Innovation

Bridging Loans And Their Uses

A bridge loan is a loan that a person (or sometimes a business) takes out for only a short time–no longer than one year. The purpose of the bridge loan, or bridging finance, is to give the borrower needed cash until he secures a more long term loan or receives funding. The immediate cash flow that is provided by the bridging finance allows the borrower to meet current financial obligations while a deal or contract is still in process or being negotiated.

Taking a bridge loan means you will be paying a high rate of interest, and you must back it with collateral. These types of loans, like their name suggests, bridge the gap from when the individual receives more long-term loan and his direct financial obligations. Bridging finance may be utilized in a variety of financial scenarios.

Business owners may apply for bridge loans to finance their needed working capital for an investment while their equity financing deal is still in the process, which usually take several months to complete.

People often resort to bridge loans when they are planning to sell a home. The real estate market in a specific area can move slowly at times, or a home can just be difficult to sell. People who purchase a new home before selling their existing home may take out a bridge loan so that they can pay for their expenses and financial obligations until a sale is finalized on the existing home and they have access to the proceeds. A bridge loan may also be used as “chain breaking”, meaning a borrower may use it to purchase a new house even while their old house is still on the market.

Bridge loans are often used to protect or improve one’s credit record. A borrower may apply for a bridge loan to finance payment of an outstanding debt, thus making a good credit standing and allowing one to apply for other loans that are more permanent and larger in amount. While they are still moving from one job to another, or waiting to be hired, people may find bridge loans indispensable. Likewise, people can also use of these types of loans to cover cost of relocation demanded by a new job.

Often, you can receive a bridge finance in just 24 hours, since the need for extensive background checks and risk consideration are minimized by the high interest rate, short duration, and collateral backing required.