A bridge loan is a type of short-term loan that is usually given to a business to help it meet its financial obligations between two longer-term financing loans. The loans are usually used to cover capital shortfalls that can occur when the business needs to pay off one loan before a new loan-term loan is approved.
The loan provides the necessary financing when you need money fast. For example, if the company has to buy some assets but does not have the money to do so, a bridge loan can be secured to purchase the asset.
Types of Bridge Loans
There is no restriction on how you can use a bridge loan. Most companies use the loans to cater for mortgage or for operational capital. For instance, if the company’s mortgage loan on its premises is dues before the company finds a suitable replacement long-term mortgage loan, a bridge loan may be acquired to pay off the current mortgage. Form these, when the new long-term, loan is acquired, it will be sued to pay off the bridge loan.