Bridging loan is a short term loan which is used to pay back the long term finances or for foreclosure. It is generally taken for a period of 2 weeks to 3 years. When we sooner or later go for new finance, we pay back bridge loans.
However bridge loan is a bit expensive. The interest rate is between 12 to 15%. Bridge loans are generally used to retrieve property from foreclosure, close the real estate property quickly. You can also look for short term opportunities in order to have long term finance. In case of bridge loan to value ratio should not exceed 65% for commercial properties and 80% for residential properties.
Bridge loans are generally not given by any bank since it lacks full documentation, is risk and bankers find hard to explain it their government regulator. In fact you can get from some big investors, lenders, investment pools and businesses who are engaged in giving high interest loans.
You can take few examples. The first one is that of project. You would like to continue a new project. However you will not be able to get mortgage very soon. You can in these cases go for bridge loans and wait for the opportunities to come by. Once you are financed you can pay back the bridge loans and also the fund required for the project.
There is one more example. Let us take the case of foreclosure. As far as foreclosures are concerned you hardly get time. It takes about 20 to 28 days time in which you have to close the property. You will not be financed in this small time. You can then go for bridge loan and get the property closed. You will certainly be financed in few months and you can pay back the bridge loans and other expenses.
Bridge finance is used to pay now, enjoy the advantage and pay back later. Just think that you are a buyer. You want to buy a house now. However you will get the money after some days. You can go for bridge finance and enjoy the fruit.
There are two types of bridge financing:
- Closed bridge financing: in this kind of financing the borrower informs the lender about the final date before which the loan will be paid back. This is safe and has low interest rate.
- Open bridge financing: in this case the borrower is not sure about the final date to pay back the loan. The interest rate in this case is high in jobs and careers in the Music Industry.