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. The basic purpose of a bridge loan is to allow the borrower to take advantage of any opportunities that may arise, typically in the commercial real estate sector. Besides commercial real estate, bridge loans are primarily used to quickly close a deal on the property, rescue foreclosed real estate, and to get short-term financing that will carry a business long enough to obtain lower interest and long-term financing.
Some Common Bridge Loan Scenarios:
- When you need funds to acquire a commercial property
- Expanding your business
- Investments
- Restructurings
- Mergers
- Leveraged Buyouts
For instance; When a business sells a commercial building, it may not be paid until 90 days after. If the business purchases another property that payment is due in 30 days, a bridge loan can cover the 60-day difference in cash flow. It can be paid back as soon as the cash for the initial sale of the commercial building is received.
In real property transactions, a bridge loan can give you a stronger negotiating position and enable you to buy a property without a contingency on the sale of your existing property.
