The Pros and Cons of Bridging a Loan

by Finance 27 October 2018

bridging loan

There are many situations where it is important to be able to secure financing in a timely fashion. In the business world, you will need to be able to act quickly in order to be able to make certain investments. You may also require funds just to cover certain operational costs while waiting for more funds to come in. If you are in need of money fast, then you might want to consider bridging a loan.

For those who aren’t in the know, a bridging loan refers to securing short-term financing. These are quick loans that allow you to receive funds fast so that you can get by. You will then be able to take the time to secure a more permanent financing solution while paying back the short-term loan within the agreed-upon parameters. There are many benefits to bridging a loan in this fashion, but there are also negatives aspects that you should consider.

Why Do People Bridge Loans?

One of the most common reasons that people decide to look for short-term financing solutions is that they want to make an investment. Sometimes, opportunities present themselves, and you need to be able to strike right away. Real estate investment opportunities are a good example of this. Having the ability to get the money that you need quickly is essential if you want to be able to purchase a hot property.

The Pros of Bridging a Loan:

When you need to finance something quickly, it is important that you are able to get access to the funds in a timely fashion. Short-term loans can work to get you what you need as fast as possible. There are generally two types of short-term loans that you can sign up for. There are closed loans with a fixed repayment date and open loans that have greater flexibility.

Those who need to make a quick investment or who are trying to buy a property will be able to easily access closed loans. You set up a date for repayment and everything works out very smoothly. Open loans are more common when you have yet to figure out the details of when you can close on a property. This is a little bit more ambiguous, as you won’t know when you will be capable of repaying the loan yet, but it is good to have flexible options.

The Cons of Bridging a Loan:

Bridging a loan can be more expensive than getting a traditional loan. You will be paying for the convenience of getting the funds that you need so quickly. Bridging loans are a short-term financing option that is only to be used for specific purposes. It isn’t something that you will want to use regularly, as you’ll be paying significant amounts of interest on this loan type.

Also, if something goes wrong with your investment, then you could be stuck with a costly loan and no way to pay it back. This can be a bit of a high-risk loan situation if you don’t know what you are doing. It is important to only use bridging loans to get by when you know that repayment won’t ruin you. Take all of the possible outcomes into consideration before deciding to move forward.

Is This Worth Doing?

Bridging a loan is worth doing if you need to be able to secure financing fast. It really all comes down to what options are available to you. If you have an open credit line elsewhere that you can use, then you should probably go with a more traditional financing option. Those who need to secure the money fast will find that bridging a loan can be worthwhile. You may wind up paying quite a bit of interest, but it can still be an effective means to an end.

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Ariana Smith is a blogger who loves to write about anything that is related to business and marketing, She also has interest in entrepreneurship & Digital marketing world including social media & advertising.

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