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Bridging Loans And Their Uses |
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A bridge loan is basically a short term loan -- usually repaid in less than a year. The reason for a bridge loan, or bridging finance, is to cover the expenses of the borrower until a more long term loan or funding is secured. Bridge loans provide immediate cash flow for borrowers as payment for various abrupt financial obligations while waiting for the approval of standing deals or contracts.
by AlanHarding
A bridge loan is basically a short term loan -- usually repaid in less than a year. The reason for a bridge loan, or bridging finance, is to cover the expenses of the borrower until a more long term loan or funding is secured. Bridge loans provide immediate cash flow for borrowers as payment for various abrupt financial obligations while waiting for the approval of standing deals or contracts.
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 commonly use bridge loans when they are selling a home. There can be times when the real estate market in a given area is moving slowly, or there can be a home that is proving a hard sell. The owners of the home who are selling the house and want to move may take out a bridge loan so that they can pay their utility and food bills, as well as other financial obligations, while they await the sale of their home and the proceeds that they get from that. Or they may use the bridging finance as "chain breaking", meaning they purchase an already-desired new house while they are still awaiting the sale of their current house.
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.
Bridging finance can often be acquired in just 24 hours, as the high interest rate, short duration, and collateral backing alleviate the need for extensive background checks and risk consideration.
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