A “bridge loan” is a type of short-term loan availed by a company or individual before securing permanent financing or to fulfill an existing obligation. By providing instant cash flow, the bridge loan enables the borrower to clear current debts. Bridge loans are typically given for one year and have higher interest rates than long-term loans.
How does it work?
If you want to buy a property that is worth $10,000,000 and about 25% of the amount is met by equity from family, friends, business partners, or crowdfunding, you are still short of the remaining 75%. A bridge loan is an effective way to meet this gap.
Bridge loans are also called swing loans, interim financing, and gap financing. As the name suggests, the bridge loans fill the gap when there is an urgent need for financing, but a long-term loan is not yet available. While corporations and individuals can avail bridge loans, the loans can be customized by lenders.
Uses of bridge loans
Bridge loans are used for multiple reasons in real estate that includes purchasing a property that has a tight closing timeline.
Bridge loans are also used for renovating a property before selling it in a short period. These loans also help property owners save properties from foreclosure.
Stabilizing a property’s cash flow, finding a tenant, or resolving a property related issue such as environmental damage are some other reasons why a bridge loan is taken. Borrowers who have an insufficient credit score that prevents them from securing a permanent loan can also go in for bridge loans. Bridge loans generally carry a term that ranges between one and three years and is paid back when the property is refinanced or sold.
Those looking to renovate their property can take a bridge loan that can help install new appliances, flooring, paint, and countertops. After the renovations, the property owner can raise rental rates due to the upgrades installed.
Bridge loans are attractive because of the flexibility they offer. By enabling access to short term capital, these loans enable investors to meet many of their current property-related obligations. From quickly closing on properties, taking up renovations to finding new tenants, bridge loans provide effective solutions to property owners.
-The Multifamily Review Team
Hi, my name is Michael Avent. I founded The Multifamily Review in 2020. I’m a Commercial Agent at Northcap Multifamily located in Las Vegas, Nevada. My vision for The Multifamily Review is to be the most trusted resource for all Multifamily Investors and Industry Professionals. We strive to offer the best and most up to date content to our readers and are always open for suggestions. Make sure you sign up to join our newsletter to stay up to date on our latest blog, ebook, and more exclusive content that’s coming your way! The Multifamily Review team and I look forward to building a deeper relationship with you!
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