Understanding The Concept Of Bridging Loans

There are many financial products out there. They are all designed to help people and businesses to afford the things they need without having to save for years. Most people are aware of products like overdrafts, mortgages and bank loans. However, some products are not so well known, and bridging loans fall into that category. Here we provide a brief overview of what they are and who can benefit from using them.

What is a bridging loan?

A bridge or bridging loan is a form of short-term finance. It is designed to bridge the gap while the borrower finds and finalises long-term finance. Another way to look at it is as a form of interim financing. The length of the loan varies depending on what the borrower is financing. Lenders know how long it usually takes the borrower to arrange long-term finance, so tailor their loans accordingly. Typically, bridging loans last for between two weeks to three years. In some countries, this form of loan is also known as a caveat loan or a swing loan.

Examples of when this kind of finance is used

Both businesses and private individuals use this kind of financing. Many private borrowers and businesses use these loans when they are buying property. They can allow someone to buy a property at auction. Once they have secured a mortgage the bridging loan is paid back.

These loans can also be used by firms to allow them to take advantage of a business opportunity. For example, take on a big contract. Many companies require the firms they place large orders with to prove that they have enough cash available to cover the cost of buying the raw materials needed to fulfil their order. A bridging loan is a great way of providing a business with cash and doing so quickly.