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What is a Bridge Loan?

What is a Bridge Loan?

A Bridge Loan is a short-term loan which is used to “bridge the gap” between two long-term loans. Companies can use these loans to cover any shortfalls that come up when the company needs to repay one loan before it has had time to obtain a new long-term loan.

Types
Companies can use this type of loan in a number of ways for different reasons. The most popular types of these loans are operating capital and mortgage loans. For instance, if a company’s long-term mortgage loan on the their office comes due before they can find a decent replacement mortgage loan, the business can look into obtaining a bridge loan to pay off their current mortgage. Then, when the business acquires a new long-term loan, it will pay off the loan they obtained to bridge the gap between the two mortgages.


Advantages
Businesses, typically, will have an easier time qualifying for a bridge loan than they would for more long-term options. Lenders in the bridge industry know and understand that these types of loans simply provide gap financing and aren’t used as long-term solutions for the company looking to obtain one, which means the company is generally more willing to pay a higher interest rate. Bridge lenders customize these loans to the different needs for businesses. The idea behind this type of loan is that it’s quick and easy to acquire, unlike a traditional commercial loan.

 

Disadvantages
These loans can be more expensive than a traditional long-term loan. The way the financing industry generally works is that the quicker company can access the cash they need, and that the easier it is for them to qualify for the loan, the higher the financing costs or interest rates will be. Just how payday loan comes with a higher interest rate than a mortgage or auto loan, so does a bridge loan. The higher financing costs are the main reason why a business would only use this type of loan as a short term solution.


Prepayment
A great benefit of using this type of loan is that the business that obtained it can typically pay off the loan at any time without a prepayment penalty. Most commercial mortgage loans might charge a significant penalty for paying off the loan before the time previously agreed upon. Bridge loans typically do not carry a prepayment penalty, which makes them a pretty flexible financing option for companies or businesses looking to obtain one while they find a long-term loan.

 

If this type of loan sounds like the right option for you and your business, head over to http://nfusecapital.com/bridge-loans/ and see if you qualify!

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