Bridge loans are the type of the short-term loan that acts as a supporting financing by the bank, credit unions, or private lenders. The main goal of the bridge loan is to finance something until the main source of financing is unavailable. The borrower pays off the debt after receiving funds from another source of financing (sale of assets, real estate, etc.).
In the companies, a bridge loan may be a source of working capital for the acquisition of fixed assets. Then, cash from the sale of obsolete assets becomes a source of loan repayment.
Still, bridge loans are mostly known as commercial mortgage bridge loans. They act as a temporary bridge between a sale of an old house and a purchase of the new one. Usually, the funds from the bridge loan are the down payment for a new house.
Commercial bridge loans are short-term commercial real estate loans that people use to purchase commercial properties.
How Do Bridge Loans Work?
The main principle of the bridge loan is fast application, approval, and funding process. On the other hand, they have relatively short terms, high-interest rates, and large origination fees and that’s commercial mortgage bridge loans risk you can face.
Nevertheless, borrowers accept the risk and apply for bridge loans for homes, as they need fast and guaranteed approval.