What Is A Bridge Loan ?
An interim financing to an individual or to a company to fill the gap before a final or the next level of a loan can be sanctioned to the applicant is called a bridge loan. This final loan then takes care of the bridge loan repayments as well as the actual capitalization needs.
Bridge loans generally have a higher rate of interest as it is usually taken by someone in urgent need of capital and also because it gets sanctioned in the earliest possible time. These urgent situations may include quick closing on a property, retrieving a real estate from getting foreclosed or grabbing a short term financial opportunity which may lead to long term investments.
The rate of interest for a bridge loan may vary from 12 to 15 percent. The loan to value or the LTV ratios usually are under 80 percent for residential properties and under 65 percent for commercial properties, which is dependent on the appraised value. They usually do not have a fixed payment deadline but a payoff is required after a specific period of time has elapsed. However, most bridge loan borrowers try to repay the total amount in the least possible time because of high interests and other risk factors.
Bridge loans are popular with venture capitalists, various corporate financers, etc for different reasons. These reasons may include tiding over the company from being bankrupt between successive major private equity financings and also before an initial public offering (if the need be so). The loan is then paid off after the property or the business is sold off.
More Articles :
|
.gif){kind=spacer}
