Bridge Loan


A bridge loan (or swing loan) is a type of short-term loan in the financial industry. Bridge loans are typically taken out for a period of 2 weeks to 3 years in order to finance projects. Bridge loans are often used for commercial real estate purchases, to quickly close on a property, retrieve real estate from foreclosure, and to take advantage of a short-term financing opportunity in order to secure long term financing. Speed is a bridge loan’s number one asset.

A bridge loan is similar to a hard money loan. The primary difference between the two is that a hard money loan can refer to a distressed property or situation. A bridge loan may be simply a similar or higher interest loan that provides interim financing for an individual or business until permanent or the next stage of financing can be issued. For example a land loan for an investor might only cover 50% of the property value. A bridge loan might lend additional funding during the permit phase. The construction loan will be issued usually after the permits are issued and approved. Then the end loan or traditional mortgage will be issued after the certificates of completion are issued by the local building department.

Example: If you are trying to convert an apartment complex into condos and a bank will provide you with a sum of money only after a five month period, you might take out a bridge loan to finance your project while you are waiting for the bank.

Bridge loans may also be funded with hard money loans.

Bridge loans are also commonly used by consumers for the purchase of real estate.

Example: A consumer is purchasing a new residence and plans to make a down payment with the proceeds from the sale of a currently owned home. The currently owned home will not close until after the close of the new residence. A bridge loan allows the buyer to take equity out of the current home and use it as down payment on the new residence, with the expectation that the current home will close within a short time frame and the bridge loan will be repaid.