Whether you’re running a business or starting one, sometimes financial obligations pop up. When they do, it’s not always at the most opportune time.
There’s a rescue plan for those types of emergencies and they’re called bridge loans.
Bridge loans save the day when you’re waiting to lock down permanent financing to help your issue. They make cash readily available. Plus, you’re not beholden to a long-term period of interest and fees.
With bridge loans, you also have the convenience of repayment options. Borrowers can pay in full right away or make payments over a structured period.
But no two bridge loans are alike.
If you’re looking into short-term financing via bridge loans, you should read this. Learn here a few of the differences with our guide to the different types of bridge loans.
What Are Bridge Loans?
There are short-term loans and long-term loans. Both act as financial solutions, but the terms differ in nature.
Long-term loans are a more permanent answer to on-going finance needs. Short-term loans resolve the right now concerns. These loans are one-time cash-ready options that get repaid within a year.
A bridge loan, also referred to as bridging finance, is a type of short-term loan. Companies and people alike can use this option to secure financing for pressing obligations.
Bridge loans require collateral and do come loaded with higher interest rates. But, they provide quick access to cash flow with the option to remedy the debt within 12 months.
Ways to Use Bride Loans
Homeowners looking to sell their current home, use bridge loans to purchase a new home while they wait.
Businesses can also use bridge loans for mortgage purposes.
When the mortgage on their office space comes due, they can obtain a bridge loan to pay it off. Once their long-term financing kicks in, they can pay off the bridge loan and exist as usual.
Types of Bridge Loans
There are several types of bridge loans. The most common are open and closed-bridging loans. Both are still short-term finance options but the terms differ slightly.
Closed bridging loans are short-term loans with a built-in exit strategy. Language for the loan specifies to the lender exactly how you’ll repay it. For example, the funds from the sale of a property or other monies you’re expecting to arrive.
Lenders approve the loan based on verification of the arrival date of such funds. That makes the loan low-risk.
For this reason, borrowers may catch a break on the traditional high-interest rates for these types of loans.
With open-bridging loans, the terms of the loan require land or property to secure financing. But, unlike CBLs, there’s no exit strategy for the loan or no set date for repayment.
For example, a homeowner applies for a bridge loan before their property sells. Lenders find the request a risk because there’s no guarantee the property will sell.
For this reason, a higher interest rate gets assessed on the loan.
Consider Bridge Financing
Loans help meet financial means when capital runs low. For companies and people, bridge loans are an option to remedy financial short-falls.
But not all bridge loans are the same. Access your financial circumstances. Choose the best solution that works best for your situation.
Find out more ways to handle your finances. Take a look at our living guide for inspiration on how to navigate life’s processes.