Bridge Loan Financing Benefits
Bridge loan financing facilitate someone who has not yet sold their previous or old property to be able to purchase a new one. The person uses equity from the existing property as a down payment for the new one before they have acquired the equity. Moving from an old home is time pressured since the closing date requires you to have vacated the premises. It provides temporary financing before the person gets a more permanent or long term financing solution. The loan has various benefits as well as drawbacks that an applicant should weigh out before taking the loan. Commercial bridge loans serve a much needed market no longer being served by banks.
The major benefit of bridge loan financing is the short term nature of the loans. The loans are designed to be paid fully before a person gets to secure long term funding. This reduces the risk getting into a financial hump and losing the ability to pay back. Long term loans are stretched over a long period and the borrower may suffer financial problems. Deferring from making payments eventually lead to penalty fees and the borrower has to pay a larger amount than originally planned. Some end up getting into more debt so as to clear previous debt which may not help eventually.
The short term nature allows borrowers to clear their debt before they get into financial huddles or take on other loans. The bridge loan financing also provides borrowers with ability to choose their repayment option. Since it a loan provided before one secures a permanent financing solution there can be two options. The borrower can choose to repay the loan before they secure a long term financing solution. They can also choose to repay it after they secure the long term finance. A borrower is therefore able to weigh their options and choose the best and most suitable method for themselves.
On the downside bridge loans are short term meaning they have to be repaid in a shorter time period. This may a financial problem to the borrower. This may also mean large payments that the borrower may be unable to afford. Choosing to repay the loan after acquiring long term financing may not be good as the loan earns interest the longer it is not repaid. Bridge loan financing is a bridge before permanent financing is acquired. Such expectations may fall through leaving the borrower stranded. The situation is worse if the long term financing was intended to repay the bridge loan.