Question:

Definition of Bridge Loan

Answer:

A bridge loan is a loan extended over a project in transition, while waiting for the main financing to arrive. It can span over a period of several weeks to several years. The main financing is expected to pay for the bridge loan, also called swing loan.

A bridge loan would have higher rates and will be taken under unusual circumstances requiring speed, such as acquiring properties in foreclosure, or financing constructions until they reach certain phase of development to qualify for the main financing. A bridge loan may be used for commercial and residential properties and is not exceeding 80% LTV.

As a bridge loan is considered a high-risk short-term loan, with rates over 12% and without full documentation, it will not be extended by common lending institutions such as banks. Rather, private investors specializing in high risk investments will fund bridge loans.

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