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What Is a Bridge Loan?

A bridge loan is a kind of loan that is meant to provide a borrower with short-term assistance. The name implies a lot about the nature of the loan - it serves as a bridge to get an individual through a temporary tough period. They also often serve as loans to deal with temporary cash flow problems in between more stable sources of financing.

The biggest advantage that a bridge loan offers is that it can be obtained fairly quickly. In times of financial emergency, the speed at which a bridge loan can be obtained is very much welcome. However, there is a downside to a bridge loan - the high interest rate that is usually applied. This kind of loan is also considered to be risky business, and as such, not all banks and financial institutions offer bridge loans in their line of products.

The terms of a bridge loan differ depending on the lending institution. In many cases, however, a borrower has to put up collateral in order to be approved for a bridge loan. The collateral may come in the form of property, for example. A businessman applying for a bridge loan for the business may have to put up his inventory as collateral as well. Moreover, the fees associated with a bridge loan can be high. On top of the already high interest rate, there are many different charges added to bridge loans.

As for the period of a bridge loan, it also varies. A bridge loan may be repayable in as short as several weeks to as long as several years.
As with any type of loan, it is imperative that you read the fine print before signing the dotted line. Otherwise, you might end up on the losing end of the deal.

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