The Purpose of a Bridging Loan
Usually bridging loans are taken out in order to help comply with short-term funding requirements of a company or individual. Due to the fact, bridging loans are quite easy to apply for they are probably the best decision for quick cash assistance. There are very few numbers of formalities included bridging loans can be obtained in no time. There is no need for any kind of paper work during availing bridge loans. These are the reasons which make bridge loans an easy and hassle-free method of raising fund.
It is also quite suitable for those people who do not have financial stability. One advantage of bridging loans is that unlike other kinds of loans, the borrower’s credit record does not matter. Since such loans are sanctioned based on collateral the credit worthiness of the borrower is insignificant. This means a person intending to borrow such a loan will receive such a loan after providing collateral. Bridging loans get their approval entirely based on the value of the collateral. Thus if a person provides a commercial or residential property as collateral security, he will easily receive the loan with for a sum of money that is closer to the collateral’s value. Thus the credit record of the borrower is of no significance when placed in juxtaposition of the collateral he is capable of providing. This means that if the borrower fails to repay the money within the allotted time, the lender can obtain back the money by selling of the property.
Such kind of loans is taken by companies as well as the individuals for the following reasons:
- To raise short-term working capital for business
- For temporary problems of cash flow
- In order to pay unidentified demands of tax
- In order to purchase a property at auction
- In order to construct residential, commercial and industrial units
- In order to renovate properties
- Purchasing land
Bridge loans are paid back in a lump sum when the allotted time comes to an end. The interest on bridge loans is usually payable monthly. Bridge loan is a kind of short-term loan. It is also known as swing loan or caveat loan. When someone is waiting for long term financing, he can easily bridge the gap by availing bridge loans.
Advantages of Bridge Loans:
- Fast Approval of Loans – Bank usually makes decision very quickly while taking the decision for sanctioning the loan. The banks understand that such loans are taken by the people who require some financial assistance immediately. The minimum time taken by the bank in order to approve the loan is only twenty-four hours.
- Short-term Financial Assistance – Bridge loans are very useful in situations when you need take a decision that gives you guarantee about receiving money very quickly. Such kind of loan helps to ease short-term drought of money. The repayment period ranges from only 1-12 months. Thus if anyone requires cash immediately and he is sure of receiving money in a short time, it is advisable to avail such loans.
Disadvantages of Bridge Loans:
High Rate of Interest – Such kinds of loans are quite expensive for the reason that they include two kinds of payment. The payments consist of interest rate and the arrangement fee. Such loans have a high rate of interest. Moreover if the borrower fails to repay the money in time high penalties are charge. The banks may also choose to sell off the property in order obtain their money back.
Mark hopes to help people with their finances by providing information about options such as bridging loans.