Just like a bridge over a river helps you to cross it, so does a bridging loan helps you to get over a tight financial crisis on a short term basis. A bridge loan is for a short time that could have a life between 2 weeks to 3 years subject to the arrangement of pending main loan. A bridge loan is a temporary financial arrangement for a business or an individual till the time a permanent financing arrangement is finalized.
Bridge loans are an immediate and a temporary financial relief. The bridge loans carry an extra risk as compared to conventional loans and to cover the extra risk the loans are expensive with high interest rates. There are two kinds of bridging loans-an open bridging loan and a closed bridging loan.
OPEN BRIDGING LOAN
Usually bridging loans are available to cover a defined period of wait for the approval of the main source of finance. But when you do not have an agreement for the main finance loan or a solid time frame for the repayment of the loan; it is an open bridging loan. Since open bridge loans carry a bigger risk for the borrower and the lender and thus they are more costly.
CLOSED BRIDGING LOAN
It is a situation where the borrower is a homeowner and has secured contracts to sell the property and has a affirmative mortgage offer or has made some financial arrangements to pay-off the loan at a predetermined time in the future. These are the prerequisites to obtain a closed bridging loan. The certainty of the loan allows the lender to offer you lower interest rates because of lower loan risks. Lower loan risks means the easy availability of loan and a flexible package.
BRIDGING LOAN-A DEAL SAVIOR
In recent times the demand for bridging loans has been on a steady rise. The utility and importance of the loan to bridge or fill the gap of urgent but temporary cash strap has driven the business community to seek short-term security loans. Typical problems faced by a buyer of property are the time period consumed by a large loan to be finalized or the sale of the present property is incomplete. The buyer in such a situation seeks refuge with a bridging loan to protect the deal from collapsing.
APPLICABILITY OF BRIDGING LOANS
There is long list of options where you can use bridging finance for commercial or private use. The companies dealing with bridging finance can provide the cash within 24 hours, after receiving your application and the terms of the loan may be anywhere from a few days to a couple of years. The specialist companies are flexible in allowing you to use the loan for securing a home buy, purchasing a new home during the waiting period of a mortgage. Bridging finance can be also used for completing a building project, renovation, redevelopment and buying properties at auctions. You can avail the bridging loan to expand or fund new business, pay tax bills and even cover a divorce settlement.
Is there the element of risk involved in bridge loans? Yes, it encircles around your situation but the facility is a lot greater.