What is a bridge loan?
A bridge loan is essentially an interim loan or financing that an individual or company takes out to finance the purchase of a new property or secure an existing obligation on its current property.
Bridge loans are otherwise known as swing loans, interim financing, gap financing or bridge financing. It is a short term loan with a maturity term of 90 days or up to 12 months. As its name implies, it bridges the gap between the time a borrower secures the needed funds to purchase a new property or meet existing obligations on the current property so the borrower does not have to sell it to buy a new home or property.
One of the most common characteristics of bridge loans is that they have high-interest rates. Another characteristic is that a bridge loan provides immediate cash inflow.
Major reasons individuals or corporations take out bridge loans include upgrading to a new home or facility, taking advantage of underpriced real estate property or real estate investment.
For individuals or corporate entities assured of future permanent financing, a bridge loan may be ideal to quickly purchase a new property.