Bridge Loan

A bridge loan is a short-term loan that is used to finance a transaction while a longer-term loan is being arranged. Bridge loans are typically used to close a real estate deal when the buyer does not have the cash on hand to complete the purchase. The bridge loan is then repaid with the proceeds from the sale of the property.

Bridge loans are often used by real estate investors who are looking to flip a property. A flipper will buy a property, make some improvements, and then sell it for a profit. The bridge loan allows the flipper to close on the purchase of the property before the sale of the improved property closes.

Bridge loans are also used by businesses that need to make a large purchase but do not have the cash on hand. For example, a business may need to buy a new piece of equipment or make a large investment in inventory. The bridge loan can be used to finance the purchase until the business can generate the cash to repay the loan.

Bridge loans are typically secured by the asset that is being purchased. For example, a bridge loan for a real estate purchase would be secured by the property itself. The interest rate on a bridge loan is typically higher than the interest rate on a traditional loan. This is because bridge loans are considered to be riskier than traditional loans.

Bridge loans are a short-term solution and should only be used when there is a clear plan to repay the loan in a short period of time. If the borrower is unable to repay the bridge loan, they may have to forfeit the asset that was used to secure the loan.