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Definition: Bridge Loan
As the name signifies, bridge loan is a form of an interim loan used for short term financing until the permanent long term financing can be obtained. They provide an immediate source of cash flow and help the user to pay off his current obligations. However, these loans have higher interest rates due to the high risk attached to them and are usually supported by some form of collateral. The loan period typically varies from a few weeks to 1 year.
These loans are very common in real estate transactions where there is a time lag between the sale of one property and purchase of another. So the broker can first purchase a property by taking a bridge loan and can pay it off from the money he gets by selling the same or different property.