In this article, we’re discussing bridge lending solutions, which are commonly used in the world of real estate and business as a means of short-term financing.
This article is part of our free series on banking and financing, including how to find an overseas mortgage to open remotely around the world.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Bridge Lending Solutions
- Examples of Bridge Lending
- Bridge Lending vs Traditional Funding
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Bridge Lending Solutions
Bridge lending solutions are short-term loans that offer temporary financing to individuals and businesses. Commonly referred to as a bridge loan or bridge financing, they allow borrowers to meet short-term requirements prior to accessing longer-term financing options.
Examples of Bridge Lending
Not surprisingly, one of the most common forms of bridge lending solutions is real estate bridge loans. Available from both financial institutions and private lending solutions, these real estate loans offer private individuals a way to acquire real estate prior to selling an existing property and releasing their existing mortgage.
That said, commercial bridge loans are also commonly used in a number of different scenarios in the world of business. One example is the use of bridge financing prior to the IPO of a company. In this instance, the bridge loan is used to cover the expenses of going public prior to receiving an injection of capital.
Like all bank loans, there is a bridge loan application and approval process, which involves unique requirements and terms that borrowers need to meet. In the world of real estate, bridge loan terms can often be more strict than traditional mortgages.
For example, bridge loan rates are often higher than the interest rates paid on traditional mortgages. Likewise, while home equity is often used as collateral, borrowers are typically required to have at least 20% to 30% equity in order to qualify.
Again, bridge loan lenders include financial institutions like banks and credit unions. However, bridge loan companies that specialize in this form of short-term financing also exist. Not surprisingly, the rates and terms offered can vary widely across each option. With this in mind, it’s important to compare bridge loan rates and terms across all available options prior to selecting a provider. That way you can ensure you’re able to meet the requirements, terms, and avoid defaulting on payments.
Bridge Lending vs Traditional Funding
The main difference between bridge lending and traditional funding options is that bridge lending is a form of short-term financing while traditional funding options can include short, medium, and long-term financing.
Additionally, bridge lending typically involves higher interest rates than traditional funding, and the terms for qualifying are usually more strict. This is because collateral and the anticipated exit from short-term financing are both critical factors in assessing whether a borrower qualifies.
That said, the assessment process for traditional funding is usually longer, and requires more documentation, a closer assessment of underlying assets, and a more extensive evaluation of the borrower’s credit profile.
In short, the main difference between bridge financing and traditional funding is the length of the financing and the purpose of obtaining the loan.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into bridge lending solutions. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Type of Loan Is a Bridge Loan?
A bridge loan is a type of short-term loan that is used to meet financial obligations ahead of accessing a longer term alternative like a traditional mortgage. Bridge loans are commonly used in real estate between transactions and in business in order to meet short-term capital constraints.
What Is a Swing Loan?
A swing loan is a type of short-term financing, commonly referred to as a bridge loan. Swing loans offer borrowers a way to cover short term financial obligations prior to obtaining long-term financing alternatives such as a traditional mortgage.
What Are the Risks of a Bridge Loan?
The primary risk of obtaining a bridge loan for real estate purposes is that the borrower is unable to sell their initial property, resulting in them owning two properties and carrying both the bridge loan and a traditional loan, resulting in two mortgages for an extended period of time.
What Is a Bridge Loan and How Do They Work?
A bridge loan is a type of loan that offers borrowers a temporary solution to meeting short-term financial requirements. Bridge loans are commonly used in real estate transactions and in business. The terms offered on bridge loans typically involve higher collateral requirements and higher interest rates than traditional financing.
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