Bridge loans are a type of short-term financing that is used to help tide over a business during a time where they lack cash. These funds are quickly provided and act on a time-sensitive opportunity or sustain the business. Depending on the lender, the borrower can secure the funds in one day. Bridge loans can be repaid in months or up to 2 years and have flexible terms. Borrowers can pay off the loan before or at maturity therefore many small businesses find this type of loan idea because they are free of prepayment penalties.
Bridge loans can be used for many purposes such as using them for homes or businesses. In real estate, a bridge loan can be used to buy another home before you sell the current one. Businesses can use bridge loans to ensure operations are running smooth while they search for an investor.
Bridge loans benefit home buyers because they can buy a new home and put the existing home on the market without any restrictions. They can still buy a new home even after removing the contingency to sell under certain circumstances. The application process for a bridge loan takes less time than other traditional loans so it is great for quick financing.
A drawback for home buyers is that interest costs will be higher than on home equity loans or other traditional loans. Lenders require a certain amount of equity in your existing home to qualify. In order to be approved for a bridge loan, you must have strong credit and financial history. If you find that your financial situation is poor, you could have difficulties in being approved for a loan.
Some of the ways that you can use a bridge loan is if you are in the following situations:
To qualify for a bridge loan there are some requirements you must meet.
Not every lender has bridge loans as an option, but you can look at the following lenders who may offer this for you such as:
Fortunately, there are other alternative options to consider if you want to avoid using a bridge loan. Here are some of the other options to consider:
Depending on your situation, bridge loans can be an excellent or poor option. Consider a home equity line of credit, personal loan, or a 401(k) loan instead if it is a poor option for you. Be sure to look at your financial situation to determine what is best for you.