Bridge Loan Financing

Bridge Loan Financing

Definition

Financing that is generated using a bridge loan is referred to as bridge loan financing. To further break this explanation down; a bridge loan is a short term loan which is designed to provide temporary financing until a more permanent form of financing is approved. Because of their quick nature bridge loans are sought after and used to finance renovations and purchases of real estate properties which may be under foreclosure or at auction.

Benefits

One of the biggest benefits to a bridge loan is the short term loan terms that define a bridge loan. Because most other loans are structured around longer time frames, like owning a house of college tuition, a bridge loan is perfect for a term which is far shorter. This short term loan is made to be paid out, and paid back by the time a long term form of financing would even begin. This also allows another benefit to come into play. The ability to pay back the bridge loan before or after financing for long term situations is acquired.

Drawbacks

The biggest benefit of a bridge loan can also be its greatest down fall. The short term of the bridge loan forces any borrowers to pay back the loan quickly especially when compared to a longer term loan. This short time span also effects the size of the payments as the amount of the borrowed money will reflect on how much time you have to repay the lender the full amount. Because of the duration of the loan and the understanding that is reached in receiving it most bridge lenders are not known for their leniency when it comes to missed or late payments. This may result in larger penalties and fees making the loan that much harder to abate.