BRIDGE LOANS
Bridge loans are short-term financing solutions used to bridge the gap between two financial transactions, often in real estate.
These loans are typically used by borrowers who need quick access to capital while waiting for long-term financing to come through or during the sale of an existing property. Bridge loans are often secured by collateral, such as real estate.
Key Features of Bridge Loans
1) Short-Term Nature: Bridge loans usually have a term of 6-12 months, although some can extend up to 3 years. They're designed to provide temporary financing during a transitional period.
2) Quick Approval: Because they are meant for urgent financial needs, bridge loans typically have faster approval processes than traditional loans, allowing borrowers to move quickly.
3) Higher Interest Rates: Given the short-term nature and increased risk, interest rates for bridge loans are higher than traditional mortgages, often ranging from 8-12%.
Key Features of Bridge Loans
4) Collateral-Based: Like fix and flip loans, bridge loans are often secured by the borrower’s real estate or other assets. In the context of real estate, the loan is usually secured by the property the borrower already owns or is purchasing.
5) Used for Transitional Financing: Commonly, borrowers use bridge loans to purchase a new property while waiting for their current property to sell. It allows them to make a down payment or close on a new home without having to wait for their existing property to sell.
6) Repayment Flexibility: Borrowers can repay bridge loans through different methods, such as selling an existing property or securing long-term financing once the initial transaction is completed.
Example Use Cases
Real Estate Transactions: A homeowner may use a bridge loan to buy a new house before their existing home sells.
Commercial Real Estate: Investors might use bridge loans to secure a property before longer-term financing is available or construction is completed.
Business Financing: Businesses may take out bridge loans to cover short-term expenses while waiting for long-term funding or revenue from a transaction.
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