What is a bridge loan? A bridge loan is interim financing for an individual or business until permanent or the next stage of financing can be obtained. Money from the new financing is generally used to "take out" (i.e. to pay back) the bridge loan,
A short term bridge loan is often obtained by developers to carry a project while permit approval is sought. Because there is no guarantee the project will happen, the loan might be at a high interest rate and from a specialized lending source that will accept the risk. Once the project is fully entitled, it becomes eligible for loans from more conventional sources that are at lower-interest, for a longer term, and in a greater amount. A construction bridge loan would then be obtained to take out the bridge loan and fund completion of the project.
A consumer is purchasing a new residence and plans to make a down payment with the proceeds from the sale of a currently owned home. The currently owned home will not close until after the close of the new residence. Residential bridge loans allow the buyer to take equity out of the current home and use it as down payment on the new residence, with the expectation that the current home will close within a short time frame and the bridge loan will be repaid.
A bridging loan can be used by a business to ensure continued smooth operation during a time when for example one senior partner wishes to leave whilst another wishes to continue the business. Fast bridging loans could be made based on the value of the company premises allowing funds to be raised via other sources for example a management buy in.
