Bridge Loans
What is a Bridge Loan?
A bridge loan, also referred to as a swing loan or gap financing, serves as a short-term funding solution to bridge the gap between financial needs in various situations. Commonly used in real estate transactions, bridge loans provide immediate funding to facilitate a purchase when the necessary funds are not yet available.
For instance, a borrower may utilize a bridge loan to acquire a new property while awaiting the sale of their current property. The bridge loan supplies the required funds to complete the purchase, with the borrower repaying the loan once their existing property is sold.
How Does a Bridge Loan Function?
Bridge loans generally feature higher interest rates compared to traditional loans, and they are designed to be repaid swiftly, typically within 6-12 months. The loan is secured by collateral, which can be the property being purchased or the borrower’s current property, and the lender may require a substantial down payment to mitigate their risk.
Bridge loans offer a valuable solution for borrowers in need of prompt funding to finalize a deal or project. They prove beneficial for real estate investors, flippers, and homeowners seeking short-term financing to bridge the gap between their immediate funding requirements and long-term financial objectives.