Introduction to Bridge Loans

Bridge loans are short-term loans designed to cover the gap pending the arrangement of a second long-term financing. This is often availed of by companies with current loans that are about to become due. The bridge loan covers the gap before the next stage of financing is approved to avoid capital pitfalls. Bridge loans are available to individual borrowers as well. Because of the risky nature of bridge loans, they are often more expensive than standard loans but are easier to obtain. Types of Bridge Loans Bridge loans are usually categorized under operating capital loans and mortgage bridge loans. Operating capital loans are used to provide enough capital to continue operations while a second loan is pending approval. Mortgage bridge loans are used when a mortgage on company offices becomes due before the company is able to find a replacement long term mortgage loan. The business may opt for a bridge loan to pay off the current mortgage as it arranges for another long term loan, which is also used to pay off the bridge loan when the second long term loan is approved. Advantages of Bridge Loans Bridge loans are easier to obtain than long-term loan options. Companies that need a bridge loan fast are often more willing to pay higher interest rates for these short term loans to avoid capital shortages so they make the process of obtaining one generally easier on applicants. Another advantage of bridge loans is that the borrower can pay off the bridge loan anytime without the threat of prepayment penalties. Unlike traditional loans where borrowers must pay fines if they decide to pay off loans before the due date, bridge loans can be paid before the due date without any financial repercussions against the borrower. This feature makes bridge loans an attractive option for companies looking for a long-term business loan.