Bridge loan financing is an effective vehicle to immediately capitalize on a purchase opportunity. It is a form of short-term financing which is expected to be paid back – generally within the range of 6 to 36 months – once the borrower obtains more permanent financing. Bridge loan financing is important for not missing opportunities when they may arise. It is basically used as transitionary financing until your business can find a long-term and cheaper type of financing. Usually, bridge loan financing is used in commercial real estate to quickly close deals, rescue property from foreclosure, and many other purposes. If a company sells a property that they will not receive payment for in a few months, they can still take advantage of an opportunity for a new property to be purchased by using bridge loan financing. The business can repay the bridge loan as soon as they receive payment for its initial sale of the property.
Why Bridge loan financing?
- Expanding your business
- Sudden investment opportunity
- Acquiring property
- Need funding for a merger
Bridge loans in corporate finance are sometimes called “gap financing”, and are used to cover the time between the redemption of one bond issue and its replacement by a new issue. They can also be operating loans for periods between LOI and acquisition, or quiet periods and IPO.