Everything You Need to Know About Bridge Loans

Applying for a loan is rarely a quick and easy process, especially for individuals and businesses seeking funds through traditional means. While traditional lending is the most commonly used, borrowing from a financial institution is not always the right approach for every situation.

For individuals hoping to secure a property while another sells or small businesses that need short-term funding, seeking a bridge lender might be a wise choice.

Read on to learn more about bridge loan lenders and the benefits of bridge loans.

The Basics of Bridge Loans

Bridge loans are typically business loans (though they can be for personal use) that provide an individual or small business with the short-term funding needed to satisfy an obligation. As the name suggests, bridge loans intend to provide a route from one situation to another. For example, one might use a bridge loan to finance a piece of equipment needed to grow their business.

Repayment usually occurs within a year, and these loans often come with a high-interest rate.

Bridge Loan Lenders

Bridge lenders are typically private lending companies, and they approve this type of lending for several purposes. As mentioned above, bridge loans can be used in business finance to supply a company with short-term funds. However, these loan types can also be used in real estate so that an individual or company can secure a new property while in the process of selling another.

Bridge loan lenders often require some form of collateral for approval rather than trusting the borrower’s credit history. The collateral for this loan type is usually the property or equipment secured with the funds obtained.

In situations where one receives funds to secure a property, the borrower can usually repay the bridge lender in a short amount of time once their previous property sells.

Bridge Loan Timelines

So, how long does it take to get a bridge loan? Unlike other loan types, bridge loans usually get approved within a couple of business days, and the repayment timeline is typically set to 12 months.

Many bridge loans are also flexible when it comes to the payments that take place throughout the lifetime of the loan. Installments might be paid monthly, quarterly, or yearly depending on the agreements made. However, the full balance is due once the loan has reached the end of its term, including the interest sums.

Bridge loans may be ideal for small businesses and individuals who need short-term funding, especially when both time and low credit scores are a concern. Though these loans often come with high-interest rates, they can be a practical choice for securing necessary funds.