Bridging finance is a short-term loan designed to provide immediate funding while waiting for a longer-term solution, such as a mortgage or the sale of an asset. It is commonly used in real estate transactions but can also be applied to business needs or other financial gaps.
Key Features of Bridging Finance
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Short-Term: Typically lasts between a few weeks to 12–24 months.
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High-Interest Rates: Due to the short-term nature and risk, interest rates are higher than traditional loans.
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Secured Loan: Usually backed by property or other valuable assets.
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Fast Access to Funds: Lenders approve and disburse funds quickly, often within days.
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Flexible Repayment: Can be structured as interest-only payments, rolled-up interest, or full repayment at the end of the term.
Types of Bridging Loans
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Closed Bridging Loan: The borrower has a set repayment date (e.g., when an asset sale is due to complete).
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Open Bridging Loan: No fixed repayment date, but the loan must be repaid within an agreed timeframe.
Common Uses
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Property Purchases: Bridging the gap between buying a new home and selling an existing one.
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Auction Purchases: Buying properties quickly when mortgage approval would take too long.
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Business Cash Flow Gaps: Covering operational expenses or investment opportunities.
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Property Development: Funding renovations or developments before securing long-term financing.
Advantages & Risks
Advantages:
✔ Fast approval and funding
✔ Flexible repayment terms
✔ Enables property purchases without waiting for sales proceeds
Risks:
⚠ High-interest costs
⚠ Potential property repossession if repayments are missed
⚠ Fees and extra costs (arrangement fees, exit fees, valuation fees)
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