What is a Bridge Loan?
A bridge loan, also known as a hard money loan, is a short-term loan used until an individual or company can secure permanent financing. Basically, they “bridge” the gap between an immediate need for cash to pay bills and the eventual closing of a pending investment agreement or long-term financing package.
Bridge loans are usually granted for a tenor of 12-36 months and many can be refinanced through lenders at low cost, long-term financing. Bridge loans are essential not only for the short term but also for quick closure, so borrowers can take advantage of the opportunity to arrange long-term loans when they are ready. Speed is also essential when it comes to financing bridges because the borrower may be trying to restructure a loan or avoid bankruptcy claims.
Some borrowers look for bridge loans to bridge the gap between the two transactions of buying a new home and selling the old one. However, most bridge loans are used to purchase or refinance commercial real estate. There are mortgage and commercial bridge loans for different income properties; Apartments, industrial buildings, retail, hotel, health care, and mixed-use.
Bridging Loans Catering To Your Needs
Constantly we find ourselves in situations where we need quick cash injections due to various reasons. It can be the difference between buying and selling a property, an entrepreneur can cover his costs before receiving payment from his buyers.
A bridging loan basically covers the time interval of a transaction, which takes place between two parties.
The option of bridging the debt can be exercised for the following reasons:
- To raise capital in case of a gap in asset sales
- To buy property in a hurry, such as by auction
- We buy one property before selling another
- Temporary funds for the purchase of defective property
- An entrepreneur who sells his products on credit may require a loan in the form of working capital requirement before it can be repaid by his borrowers.
A bridging loan is basically a short-term secured loan, which borrowers take out for a short period of time. Therefore, they carry a slightly higher interest rate. You need to provide security to avail of these loans. You can provide any of the following as a security cover for a debt bridge.
Features of the auction
commercial or semi-commercial property
These are just some of the targeting shareware you can use.
- Bridging loans usually come with relatively short tenures ranging from days to a year, which is the maximum time that can be taken.
- Understanding bridging loans, you can get them within five working days of your application
- A borrower can borrow between 50,000 and 500,000 depending on his credit requirements and his financial status.
- Borrowers with securities can get up to 70% of the collateral value up to 100% of the loan value.
Since we know that bridging loans are secured loans and hence borrowers also need to know about open-ended bridging and closed-end bridging.
A ‘closed-ended bridge’ is a place where there is already a source of loan repayment but the duration is such that funds will not be available to meet the immediate financing needs of the borrower as the owner has sold his house but has not paid yet need money.
An ‘open-ended bridge’ occurs when the source of the intended payment is known but is not guaranteed, for example, if an owner wishes to sell his home but the house is unlikely to be sold.
Bridging loans are now available to everyone, even those with a bad credit history. People with a bad credit history include:
bankruptcy, arrears, CCJ, or those who have applied for bankruptcy.
A person is termed a bad debtor if the borrower fails to adhere to the loan repayment schedule designed for him. This results in a bad credit score, which is a three-digit rating of a person’s credit value. Another benefit for people with a bad credit history is that they can improve their credit score and enjoy other benefits that people with a good credit history enjoy.
A bridging loan can be applied for online, for this, you can submit your details which will be related to your loan, personal information, and security provided by you. After that, the lenders will inform you about their decision within a few days.
There is always an instance when a person sees that he has a little less liquid cash to meet his immediate needs. Only then can we make use of bridging loans which are ideal for meeting our short-term fund crunch. And these are relatively easily available in the market.
Bridge Loan FAQ:-
What is a bridge loan and how do they work?
A bridge loan is a short-term loan that is used to bridge the gap between buying a home and selling your previous one. Sometimes you want to buy before you sell, which means you don’t have any profit from the sale to apply for a down payment for your new home.
What are the disadvantages of a bridge loan?
Cons: Shorter pay-back window, higher interest rates – Bridge loans usually have higher interest rates than traditional lenders and the loan has to be repaid in a relatively short period of time.
What are the benefits of a bridge loan?
The main advantage of bridge loan financing is flexibility. It provides borrowers with short-term capital that allows them to meet their current spending obligations, close the property early, perform a complete renovation, or allow the borrower to find new tenants for the building.
How long does it take to get a bridge loan?
Expect an approval and funding period of 30-45+ days from a traditional lender. Bridge loans from a hard money lender can be approved and financed very quickly, especially when compared to the average timeline of a traditional lender such as a bank or credit union.