What is a bridge loan? Learn when it’s time to resort to it!

If you’ve been searching for options to borrow money, you’ve probably asked yourself “what is a bridge loan”? We get it — there are so many types of loans out there that it is easy to get lost amidst all of them. 

However, if you’re searching for loans because you need quick cash, a bridge loan can be just what you need. Learn more about it here, at OneBlinc, to never need to wonder what a bridge loan is again. Keep on reading!

What is it?

After all, what is a bridge loan? As much as it calls for a dad joke, it is not a loan that can only be used to build bridges. Also called “bridge financing” or “gap financing”, this type of loan can be used for anything you want. What gives it its name are the characteristics surrounding why people look for it.

That is because bridge loans are used as a means to an end: financing. There isn’t anything else — it’s just a way that people or businesses use to fill in the gap between making a deal and actually getting the financing they need. To make this clearer, below, we show two common scenarios where people resort to it.

Opening a new business

Imagine you’re on the way to opening a new business. You have pitched your idea to many investors, and they all like it. You won’t even need to ask for a small business loan. All the money you’ll need will come from the people that believe that your project will be a success. 

After all the planning you have done, it’s now time to actively work on what you’ve put on paper. The first thing you look for is the preferable place you chose to your store. Upon investigating, however, you find out that, if you buy a lot in the next two weeks, the owners will make the price 20% lower for you.

That’s amazing, but the problem is that your investors’ financing won’t make it to your account until next month. You ponder over it and remember about bridge lending. That’s your chance to grab some money to buy the lot while still waiting for your investors!

Buying a new house

Your family has grown. Now, your home isn’t big enough for everyone. Because of that, you decide to sell it and buy a new one with the money from the deal. Weeks pass, your place is taking longer than anticipated to be sold, and you need to make your down payment on the new house.

While you wait, you decide to request a bridge loan for a home purchase, because you know you have a good credit history and it’s doable. You are approved and, luckily, your old house is bought not long after, making it easy for you to repay what you borrowed. 

Pros and cons

Now, you know how bridging loans work and some common uses of it. However, as easy and simple as it seems, this type of money lending also has some downsides to be considered before you dive in.

As is with many quick loans, bridge loans don’t have the best repayment conditions. Usually, it is a very short-term deal, rarely trespassing the one-year mark. It also can have some really bad interest rates attached to it. Besides that, if you need high amounts of money, a loan like this might only be possible with an over-the-top credit history.

There are some cons too, of course. It is a fast-approval type of loan, which means that you can get the money you need fast. As we showed in our scenarios, it can help you get a really good limited deal or even make a bigger down payment, which can minimize your mortgage installments. 

The decision comes down to finding the balance between how fast you need the money and when you are going to receive the funds to repay the debt. Some businesses can also resort to an equity bridge loan, which is equal to the equity it currently has. 

Tips on deciding when to use a bridge loan

If you’re still unsure if a bridge loan is the best deal you can make at the moment, there are some questions you can ask yourself in order to help your decision. Remember that, even with our tips, the best you can always do is ask for professional advice. In the meanwhile, consider:

• the loan term you plan on getting;
• how big the loan amount will get;
• when you are getting the repayment funds needed;
• other types of loans terms;
• the advantages of having the loan amount early.

OneBlinc might have what you’re looking for!

Now that the question “what is a bridge loan?” will never bother you again, don’t forget that OneBlinc has excellent loan options for you! Contact us and learn the possibilities we offer for your financial stability.