bridging finance

Bridging Finance

Bridging finance is essentially a conditional loan that is organised within 2-3 days and has a term from 1-12 months. Some loans are organised in as little as 24 hours and the funds provided in 24-72 hours. Interest rates vary from 1.5-6% and are calculated monthly. Bridging loans are typically secured by the borrower’s real estate and/or vehicles.

Bridging finance loans allow the borrower to quickly purchase investments or pay for expenses without having to wait for formal loan approval from the bank. Such loans are useful when time is of the essence and an immediate purchase or expense payment must be made. For example, a business owner may wish to purchase a property while its price is still low and cannot wait until the loan is formally approved by a bank. In such a case, a bridging loan will secure the investment. The business owner may also choose to refinance this loan at a later time.

Bridging loans can range from $25,000 to $10 million (or more) and are usually provided to large corporations for investment purposes such as property acquisition, share purchase, tax bill payment, etc. Except for home loans, most banks do not provide bridging loans due to their inherent risk. Lenders will also designate to what end a bridging loan may be applied.

Because of the increased risk to the lender, a higher interest rate is charged for bridging finance loans. In some cases, the interest rate may be 100% higher than the standard bank loan interest rate. One way in which the borrower may lower the interest rate is by obtaining a closed bridging loan, wherein the date by which the loan will be repaid is stipulated. Alternately, an open bridging loan does not have a given end date and is considered of higher risk than the closed loan.
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