Bridging loans, have you heard about them? Although they’ve been around for a while, they’re still considered fairly new compared to most other methods of finance. This is also the reason why some people or even businesses find them confusing making them hesitant to use it even if it would have provided for the best solution to their needs.
To end that, we came up with a list of things you may or may not know (and should) about bridging loans. Read up and find out.
- They work on the interim. They belong to this category of finance that acts as an adjoining agent between transactions. It is one taken out to provide for immediate short term liquidity needs while a permanent and often bigger finance is being arranged or is yet to be available at a later date. For example, they are taken out to pay for security deposit and/or down payment for a home while one’s mortgage is still on its way.
- They are for short term use. Bridging loans are designed to work on the interim and are therefore short term borrowings with a period of only a few weeks to at most of three years. They should not in any way be used in place of a permanent financing as those often range from 3 years and above.
- They allow for flexible payment. Users can repay and close the bridge in two ways. One is by paying for it prior to maturity. The second is waiting for maturity which is likewise the date by which one’s permanent financing becomes available.
- They can be used without restrictions. Unlike most types of funding method in the market, this does not restrict use. Borrowers can therefore allocate and spend it in any way they wish and deem best. Of course, the wise use of such resources should always be a prime objective. It’s still a loan and wasting it isn’t anywhere near wise.
- They minimize if not eliminate opportunity losses. Since bridging loans connect the gap between a need coming due and one’s permanent fund line, it not only helps hasten transactions but it likewise decreases the likelihood of opportunities lost and the costs that come with it. A good deal isn’t easy to come by so we all know very well how important it is to grab it when we can. A bridge helps us do so.