Bridging Loans are a type of gap and interim financing arrangement that allow borrowers access to short term loans in order to meet short term liquidity needs.
It works by providing users upfront funds for immediate use while a permanent financing is still on its way. This is common in property acquisitions and real estate transactions but can likewise be used for other purposes deemed fit.
Just like other methods of finance, bridging loans come packed with benefits and advantages but these perks can only be maximized and utilized with proper use. To achieve that, we have come up with the following list and guideline to show everyone along. Let’s begin.
Be in the know. It is crucial to first understand how bridging loans work, what they do, the costs they bring as well as the responsibilities that must be dealt with. Failure to completely understand and grasp it will make one prone to committing mistakes.
When in doubt, research and ask. Not all financing providers are the same. Terms can vary and so it is advised that asking questions be done when something feels amiss or confusing. Bridge loan providers won’t hesitate to help in this matter unless they’re not of quality.
Say no to autographs. Before any contracts or paper are signed they must be scrutinized and understood first. It would be silly simply sign and assume that the contents have already been fully discussed. It’s always best to verify than risk the consequences.
Use it as should be. A common mistake taken against it is in matter of usage. It must never be utilized to replace a long term financing medium as it is not designed to be one. It is only to be used for the short term. No ifs, no buts, period.
Plan your exit. Although used for the interim, it is still a form of credit and must therefore be repaid on time. There are two ways to close it out. The first can be done at maturity date upon the arrival of permanent funds. Second, it may be done prior to maturity if it proves to be feasible.
Allocate everything. Bridging loans are not restrictive in nature so users can utilize and spend them however they want. Because of this, proper budget and allocation must be done to ensure that every need has been provided for and that waste is kept at bay at all times.