Bridging Loan - What Is a Bridging Loan?

Written By Devi Kristanti on Monday, August 25, 2014 | 9:54 PM

There are plenty of alternative names for a bridging loan. They've been called "swing loans", "gap financing", "interim financing", and "bridge loans". But whatever name you attach to them, they all serve the same purpose - getting money to those who need it quickly. They're relied on for a variety of purposes in both business and private use, and if you're thinking of taking out one of these loans then the odds are that you need money but can't wait on a traditional loan to be finalized or a business deal to close. In these cases and many others, these loans can be your greatest allies.

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When you take out a bridging loan, you are taking out a very short term type of loan. Most are written for a period of one year or less, although some may extend into two years. The basic principal behind these types of loans are that by the end of the loan's terms the borrower will have secured a more permanent form of finance or have some other exit strategy with which to repay the loan. An example of this is when a business deal closes and the company has the funds to pay off their debt. Companies often use these loans to offset the wait time leading up to a deal like this.

In many cases, especially when an individual is seeking gap financing, property is usually used as collateral against the bridging loan to help assuage the risks that the lending company will be taking by loaning out the money. These risks are further offset by higher interest rates and extra fees or charges that are usually added to the transaction. So long as you know that you'll have a way to pay off the loan quickly, these short term loans are great ways to move along a home purchase, take advantage of a temporary deal, or keep cash flow running through a company until that major sale is finalised.

If you're an individual or business thinking of taking out a bridging loan, be sure that you compare rates and find the best one. As these loans shed their bad reputation and grow in popularity, the terms are becoming more and more flexible and much more competitive. Some of the biggest business deals and real estate transactions ever have relied on gap financing to secure the needed funds, and you shouldn't hesitate to look into them. There are extra costs, but the benefits can often far outweigh them.

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