The bridge loan can be viewed as a loan-anticipation loan, a short-term loan made while waiting for the completion of long-term permanent funding. Its principle advantage is time; you don’t have to wait to achieve a desired goal. You leverage the equity in your current home or retirement package to move you into your dream home weeks or even months ahead of mortgage approval.
Who Offers Them
Most lenders, whether banks or other organizations, such as unions, offer bridge loans to fill the gap between contract signing and mortgage funding. These instruments are short-term secured loans that can be arranged more quickly than a mortgage. Their term, according to the "Wall Street Journal," is typically six months.
The type of security may be personal assets or real property. Liquid assets -- stocks, a certificate of deposit or a stash of gold bars -- are best because the bank can convert them quickly if you default. A home equity loan, where the lender uses your equity as security, is another source of bridge financing.
Business or Residential
Bridge loans work for your business as well. A bridge loan can help you move your idea for a new product or service from concept to sales without delay. Using your business's assets as security, a bridge loan not only saves time but it might buy you time to capture a market share while your competitors are struggling to gain financing.
The time factor is important in real estate transactions, particularly those involving a contract that specifies a deadline. A mortgage company and title insurer will complete their due diligence before they decide whether or not to issue a check. While a bridge loan allows you to move to closing more quickly, it does require prudence.
Will Charpentier is a writer who specializes in boating and maritime subjects. A retired ship captain, Charpentier holds a doctorate in applied ocean science and engineering. He is also a certified marine technician and the author of a popular text on writing local history.