A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. It allows the user to meet current obligations by providing immediate cash flow.
Likewise, people ask, do I qualify for a bridge loan?
To qualify for the bridging loan, you need 20% of the peak debt or $187,000 in cash or equity. You have $300,000 available in equity in your existing property so, in this example, you have enough to cover the 20% deposit to meet the requirements of the bridging loan.
Moreover, what does a bridge loan cost?
Bridge loan interest rates typically range between 6% to 10%. Meanwhile, traditional commercial loan rates range from 1.176% to 12%. Borrowers can secure a lower interest rate with a traditional commercial loan, especially with a high credit score.
What is bridge financing example?
Example of Bridge Financing
A new biotech company needs $50 million during the next year to fund its research into a potent new anti-virus medication. A private equity firm lends it the money, but only at a 15% interest rate, because of the risks involved.
A major difference between these two is that new construction loans fund the construction of a new structure, whereas bridge loans allow investors to purchase a land or property, but typically do not fund any construction costs.
Put simply, bridge loans give you access to additional money with which to purchase a piece of real estate by allowing you to tap into added funds, or any equity that you hold in your current home prior to its actual sale.