{"id":48013,"date":"2023-12-28T14:24:48","date_gmt":"2023-12-28T22:24:48","guid":{"rendered":"https:\/\/financer.com\/?p=48013"},"modified":"2025-02-20T07:55:44","modified_gmt":"2025-02-20T15:55:44","slug":"bridge-loan","status":"publish","type":"page","link":"https:\/\/financer.com\/loans\/glossary\/bridge-loan\/","title":{"rendered":"What is a Bridge Loan and How Do They Work?"},"content":{"rendered":"\n

What is a Bridge Loan?<\/h2>\n\n\n\n

A bridge loan is a short-term loan that gets repaid once you obtain longer-term permanent financing or liquidate an asset. It bridges a gap in funding you may experience.<\/p>\n\n\n\n

Real Life Examples:<\/strong><\/p>\n\n\n\n

For individuals, a bridge loan may allow you to buy a new home before selling your existing one. The loan covers the down payment<\/a> on the new home and gets paid back once you close on the sale of the original residence.<\/p>\n\n\n\n

For businesses, a bridge loan may provide operating capital to cover expenses before additional funding such as inventory financing, accounts receivable financing, or equity financing comes through. The loan gets repaid once permanent financing is secured.<\/p>\n\n\n

Compare Loans<\/a><\/div>\n\n\n

How Does a Bridge Loan Work?<\/h2>\n\n\n\n

A bridge loan is a type of short-term financing that serves as an interim solution until permanent financing is secured or an asset is sold. Here’s an overview of how bridge loans typically work:<\/p>\n\n\n\n

Application and Approval Process<\/h4>\n\n\n\n
    \n
  1. Initial Application:<\/strong> You start by applying for a bridge loan with a lender. This process usually involves providing detailed information about your creditworthiness, income, existing debts, and the purpose of the loan.<\/li>\n\n\n\n
  2. Collateral Evaluation:<\/strong> Since bridge loans are typically secured<\/a>, the lender will evaluate the collateral you offer (like your current home or other assets).<\/li>\n\n\n\n
  3. Loan Terms and Conditions:<\/strong> If approved, the lender will present loan terms, including the interest<\/a> rate, fees, repayment schedule, and duration of the loan, which is generally a few months to a couple of years.<\/li>\n<\/ol>\n\n\n\n

    Funding and Usage<\/h4>\n\n\n\n
      \n
    1. Receiving Funds:<\/strong> Once the loan terms are agreed upon and the necessary paperwork is completed, the lender disburses the funds to you.<\/li>\n\n\n\n
    2. Use of Funds:<\/strong> You can use these funds for the intended purpose, such as making a down payment on a new home, covering business operating expenses, or other immediate financial needs.<\/li>\n<\/ol>\n\n\n\n

      Repayment<\/h4>\n\n\n\n
        \n
      1. Short-Term Nature:<\/strong> Bridge loans require repayment within a relatively short period, typically when the borrower secures longer-term financing or sells an existing asset.<\/li>\n\n\n\n
      2. Repayment Source:<\/strong> For example, in real estate transactions, the loan is often repaid from the proceeds of selling your current home. For businesses, repayment might come from future revenue, sale of assets, or securing a more traditional long-term loan.<\/li>\n\n\n\n
      3. Lump-Sum Payment:<\/strong> Repayment is usually expected in a single lump sum at the end of the loan term, including the principal and any accrued interest.<\/li>\n<\/ol>\n\n\n\n

        Interest and Fees<\/h4>\n\n\n\n
          \n
        1. Higher Interest Rates:<\/strong> Interest rates on bridge loans are generally higher than traditional long-term loans due to their short-term nature and higher risk.<\/li>\n\n\n\n
        2. Additional Costs:<\/strong> There may be additional costs, such as origination fees, closing costs, and in some cases, bridge loan insurance.<\/li>\n<\/ol>\n\n\n\n

          Exit Strategy<\/h4>\n\n\n\n