Bridge Loan
A bridge loan is a short term loan that is used while a person or company gets permanent financing or removes an existing financial obligation. These are short term loans backed by collateral, typically the underlying property in the context of real estate, and have relatively high interest rates while providing immediate cash flow. Also known as gap financing or swing financing, bridge financing bridges the gap between a current need for capital and a long-term solution.
In residential real estate, a lender may help a homeowner buy a new house while they wait for their current home to sell. For a business, a bridge loan can help pay expenses while waiting for long-term financing. In commercial real estate, developers obtain bridge loans to make deals before securing more permanent funds from investors. This might mean using the loan to purchase a property, then using a long-term capital solution to finance the renovations.
Pros and Cons of Bridge Loans
Benefits of bridge loans include the following:
- Short term cash flow
- Funding in the event of a sudden or time-sensitive transition
The cons of bridge loans depend on the situation of the borrower, but can include:
- High interest rates
- Foreclosure or other issues when there’s trouble securing a form of repayment
While swing loans can provide homebuyers, developers, and business owners access to immediate, short term capital, they carry risks that are important to consider before taking one out.
Bridge Lending at EquityMultiple
Since our first investment in 2015, EquityMultiple has emerged as a notable capital provider to the historically underserved CRE middle markets.
Our senior and mezzanine lending platform provides short-term bridge loans to experienced sponsors across the U.S. Our borrowers benefit from nimble, reliable capital capable of tailoring to nuanced transactions and short closing timelines. We invite prospective borrowers to reach out to our investments team to learn more about our process and parameters.
See here for more information on EquityMultiple financing or to get in touch with our capital solutions team.