Private / Specialty Lending
Private / Specialty Financing: Bridge Loans
A bridge loan (also known in some applications as a "swing" or "gap" loan) is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of permanent or longer-term take-out financing.
Bridge loans are typically more expensive than conventional financing because of a higher interest rate, points and other costs that are amortized over a shorter period, and various fees and other "sweeteners" (such as equity participation by the lender in some loans). To compensate for the additional risk the lender may require cross-collateralization and a lower loan-to-value ratio. On the other hand they are typically arranged quickly with relatively little documentation and nontraditional underwriting.
A bridge loan is similar to and overlaps with a private money loan. Both are non-standard loans obtained due to short-term, or unusual circumstances. The difference is that private money refers to the lending source, usually an individual, investment pool, or private company that is a nonbank in the business of making high risk, high interest loans, whereas a bridge loan refers to the duration and maturation of the loan.
A bridge loan may be closed, meaning it is available for a predetermined timeframe, or open in that there is no fixed payoff date (although there may be a required payoff after a certain time).
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