A bridge loan is used as short-term capital until the borrower arranges long-term finance or liquidates the property. Due to its nature, the duration of a bridge loan is typically 2-3 years, however can be as brief as just a few weeks. Bridge debt loans attract a higher interest rate than longer-term loans and usually require the real estate to be used as collateral.
Bridge Debt in Real Estate
Purchasing a property will be funded primarily from the Investor's debt. Bridge loans offer property investors flexibility in their operations, allowing them to:
Owing to the utility of bridge loans, they are a prevailing source of finance in the real estate industry.
Pros of Bridge Financing
As discussed above, flexibility in finances is the primary reason for taking out a bridge loan. The short-term capital is useful in a range of scenarios, including:
The flexible nature and quick access to capital are the reasons bridge loans are widely accepted in the real estate industry.
Cons of Bridge Financing
To counter the benefits of speed and short term loans, lenders require higher interest rates than many other traditional financing options. Lenders are typically less flexible about late payments, incurring fees on borrowers and reserving the power to repossess the real estate past a certain date. Borrowers rely on being able to obtain finance or sell the property before the bridge loan term ends. Economic conditions can risk the outcome of even high calibre investments. Borrowers risk losing their property asset if they are unable to settle their debt.
Bridge financing is an advantageous option for many in the real estate industry due to its flexible nature. When the need for finance arises suddenly, ie: in the event of an appealing investment opportunity arising on the CrowdfundUP platform, a bridge loan is often an appropriate method of acquiring the capital to resolve the issue. Bridge loans are used to fund projects for a short period of time, giving the borrower a chance to secure longer-term financing or settle the debt from the profit of a quick sale of the property.