Bridge Loan

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A short-term bridge loan to fund a business project is not typically acquired from a bank. Sometimes a bank will fund a bridge loan, but they usually come from a private lender or funding company, which can expedite the process and distribute funds more quickly. The purpose of a bridge loan is to get things done quickly and keep business moving.

Therefore, a rapid repayment plan is also an integral part of the bridge loan process. However, some bridge loan lenders may be looking to receive a specific yield from the loan and will therefore enforce a pre-payment penalty if the loan is paid off ahead of schedule. It is important to find out all about a lender's repayment policy before taking out any kind of loan.

Since bridge loans are generally taken out for real estate purposes, collateral will usually be the property the loan is for. However, a lender may also take equipment, accounts receivable, or other property owned by the same party as collateral on a bridge loan. A bridge loan can be for up to 65 percent of the total value of the property being borrowed on.

Bridge loans are often used for commercial real estate purchases to quickly close on a property, retrieve real estate from foreclosure, or take advantage of a short-term opportunity in order to secure long term financing. Bridge loans on a property are typically paid back when the property is sold, refinanced with a traditional lender, the borrower's creditworthiness improves, the property is improved or completed, or there is a specific improvement or change that allows a permanent or subsequent round of mortgage financing to occur. The timing issue may arise from project phases with different cash needs and risk profiles as much as ability to secure funding.

A bridge loan is similar to and overlaps with a hard money loan. Both are non-standard loans obtained due to short-term, or unusual, circumstances. The difference is that hard money refers to the lending source, usually an individual, investment pool, or private company that is not a bank in the business of making high risk, high interest loans, whereas a bridge loan refers to the duration of the loan.

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