If you are contemplating buying a new property but your existing property has still not sold and you do not have a long-term loan available there and then a bridging loan could be of great use to you. You can easily obtain this loan by placing a property as collateral, and the loan can be for any amount you need. But the interest rates associated with it are quite high because of the high risk on the lender.
This doesn’t bind a person to use it for a specific purpose. Hence, the borrower is flexible to use the loan amount for any purpose. The borrower may utilize it as and when needed. Also, the financial position of the individual or company is not the main point for granting the loan. It totally depends on the security furnished by the borrower. The amount of the loan is also dependent on the value of the asset kept as security with the lender. Hence why anyone can avail this loan without worrying about his or her credit worthiness.
Individuals and private companies generally take this loan either for construction or purchase of property or before obtaining a long-term loan. For example, A developer may take this loan to carry a project for which no approval has yet been obtained. Long-term lenders will not provide the loan since it would be uncertain whether the project would be completed or not. The loan provider will lend the amount on the high-interest rate and will also accept the huge risk associated with the project. Once the project is granted approval, the developer becomes eligible to obtain a loan of a huge amount with low-interest rates. This way he can pay off the loan and utilize the balance for completion of the project.
After you get the loan, the only payment you need to make is for the interest, which will be payable monthly. You need to pay the loan amount only when you obtain the long-term loan in case it is an Open Bridge loan or within a specified time if it’s a Closed Bridge Loan. So you can very well plan the repayment time of the Loan according to the anticipated cash inflows. Since these loans are generally of small amounts, one also is not burdened much by the liability, as sooner or later the borrower can obtain a long-term of the loan of a larger amount to pay it off. This also ensures that the lender gets his money back within a short period of time.
With so many formalities, documentation and appraisals required while applying long-term finance, the bridging loan is a welcome change for satisfying the urgent expenses that arise in the course of time. The interim financing needs of individuals and businesses are easily met with the help of this hassle-free loan.