A bridging loan is interim financing for an individual or business until permanent or the next stage of financing can be obtained. Money from the new financing is generally used to "take out" (i.e. to pay back) the bridging loan, as well as other needs.
Bridging loans are typically more expensive than conventional financing to compensate for the additional risk of the loan, but asking the correct broker is potentially the best avenue to obtain the best deal. Bridging loans typically have a higher interest rate but are typically arranged more quickly with relatively little documentation.
A prime example of when you might need a bridging loan would be if you are poised to buy a new home but are let down on the sale of your existing one. To secure your new home, before it goes to the competition, you could use a bridging loan. Basically, this is like a very short term mortgage and like a mortgage it would usually be "secured" against property.
Bridging loans can also be used for reasons other than buying and selling property. Think holidays, weddings, cashflow (when you need some cash urgently), Inland Revenue (for those unexpected payments), land purchase (the topic of our next post – watch this space!), and loan security.
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