A Rundown on the Benefits of Bridging Loans

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loansWe all love a good deal and it is for this reason that we all tend to gravitate towards options that are not only at a reasonable price point but also one that covers our needs and cones with a lot of benefits. It’s therefore not surprising that bridging loans have become quite the superstar in the world of finance. But then again not everyone knows about or is fully acquainted with them to even realize and acknowledge their perks. To fix that dilemma we’ve made a list just for you. Check it out below.

They are short term in nature. Unlike other credit options, bridging loans will only span between two weeks up to two or three years at most. With this comes lesser burdens and risks.

They work on the interim. This means that they are taken out pending the arrangement and/or availability of a main fund line, often a bigger and permanent financing which by nature mostly take time to either pool (e.g. income, sale proceeds, and salary) or arrange (e.g. bank loans and mortgages).

There is no restriction to their use. The funds taken out via a bridge arrangement may be utilized in whichever manner users deem fit. There are no restrictions imposed as to how they are to be spent which is oftentimes observed in other alternatives in the market, for instance in the case of a loan where it may only be spent on a specified and approved expense account by the creditor.

Payment options are flexible. Users have the liberty to choose between closing it at maturity date or before. The  former uses part of the main fund line to close the bride while the latter is one that seeks savings on interest expenses, an option not available in other financing alternatives.

They help hasten transactions. Bridging loans were named as such because they connect the gap between a need coming due and one’s bigger and long term source of cash. Since many transactions require a pre-purchase costs or where expenses will have to be spent prior to a closed deal, the immediate funds it provide allow people to grab the opportunity the soonest possible and before anyone else does.

They are immediate. Perhaps one of the most celebrated benefits of bridging loans are their ability to be processed or arranged as well as released within a short amount of time. Given that they were designed to provide for short term liquidity needs, speed is their middle name. www.alternativebridging.co.uk

The Different Kinds of Bridging Loans

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Kinds of Bridging Loans

Handshakes after contract signatureBridging loans are described as a stop gap measure that prevents opportunity losses by providing a temporary loan for short term liquidity needs pending the arrangement and arrival of a permanent and bigger source of finance.

Confused? Allow us to explain how it works by virtue of an example. Let’s say that Rob and Anna are planning to buy a new house for their growing family. They both have savings but it’s not enough so they decide to fund the acquisition either by selling their current house or getting a mortgage. The trouble with either option is that they take time. The former takes time to wait for a buyer. No one’s really sure as to when the asset gets sold. As for the latter, processing it or any similar credit arrangement will be meticulous and time consuming.

Of course, Rob and Anna still push through. Besides, it’s a given fact for both options. Now the problem arises when the house they wish to buy gets a lot of attention from other interested parties. If they don’t provide for the down payment or at least a security deposit, they will lose their chance. To avoid that they’d take a bridging loan.

Because it’s faster to process and cash is released almost immediately unlike other financing options, it serves as the perfect method for short term liquidity needs as mentioned. Moreover, payment comes in two forms which makes it all the more flexible. How? Let’s check the two kinds of bridging loans as follows.

The Open Bridge

You see, bridging loans providers allow borrowers to choose their mode of payment. Users may opt to close it before it matures or as it matures. With an open bridge arrangement, the maturity date is not stipulated but is rather and often dependent on the time by which one’s main fund source (e.g. sales proceeds, mortgage, bank loan) becomes available.

The Closed Bridge

A closed bridge on the other hand stipulates a date which can and may also be the time by which one’s permanent financing becomes available. This is often agreed by both parties at the onset and is stipulated in the terms and conditions of the contract.

As to which of the two types of bridging loans should be preferred ultimately depends on users. At the end of the day, we have varying needs and circumstances so it’s a must to choose an option that complements you best.