Quick Bailout Solution: Bridge Loan - In today's fast paced world, quick money is of paramount importance. When you are looking forward to some incoming money, but you need immediate money on hand for business or personal issues, a bridge loan is the solution for you. As the name suggests, it will let you pass between two situations, unscathed. It is usually a short term loan and the interest varies from 10% to 15%. Short term implies that it ranges between 6 and 18 months. It never extends for more than 36 months. The interest is charged on simple interest basis. You need to pay the interest every month. The principal amount should be paid at full maturity of the term.
How to obtain bridge loans
These loans are not easy to obtain. Although all money lenders do lend bridge loan and it is a lucrative deal owing to the high rate of interest, it is an extremely risky proposition. Collateral provided may or may not bail out the lender on certain occasions. Bridge lenders are financial pros who pride themselves on their sophistication. If you are new to the financial world, you might have a hard time finding a lender.
Assuming that you have identified a lender, you need to think about credibility, payment strategy, equity and exit strategy. This will prepare you for all the possible outcomes.
An example of a crunch situation
Consider a scenario where there is a building on sale at a price that is irresistible. You do not have the capital to buy it and you have approached a bank for the loan to cover it. As usual, the bank will take its own time in processing the papers, sureties, collateral and other approvals. You cannot afford to wait for so long as affordable buildings sell like hot cakes in today's real estate market. Assuming that the time taken by your bank to process the loan is 100 days, you take a bridge loan for duration of 6 months.
You know that the building is a commercial gold mine and once the mortgage is sanctioned, you not only pay off your bridge lender but you also have the profits from the building worth 6 months. If that is more than the interest that you paid, then you have got yourself a good deal.
However, what if things do not go according to plan? The building did not make the profit that you expected? Enter the exit strategy!
Importance of an exit strategy
This comes in when things did not go according to plan. It is not only a way to bail you out but a scenario that a bridge lender will expect you to have though about before applying for the loan.
There are two ways of exiting from a bridge loan. The first way is to secure a replacement financing. That can be short term or long term based on your future predictions. The other is by selling the collateral. This will help you repay the loan and walk away with whatever you gained from the deal.
How to obtain bridge loans
These loans are not easy to obtain. Although all money lenders do lend bridge loan and it is a lucrative deal owing to the high rate of interest, it is an extremely risky proposition. Collateral provided may or may not bail out the lender on certain occasions. Bridge lenders are financial pros who pride themselves on their sophistication. If you are new to the financial world, you might have a hard time finding a lender.
Assuming that you have identified a lender, you need to think about credibility, payment strategy, equity and exit strategy. This will prepare you for all the possible outcomes.
An example of a crunch situation
Consider a scenario where there is a building on sale at a price that is irresistible. You do not have the capital to buy it and you have approached a bank for the loan to cover it. As usual, the bank will take its own time in processing the papers, sureties, collateral and other approvals. You cannot afford to wait for so long as affordable buildings sell like hot cakes in today's real estate market. Assuming that the time taken by your bank to process the loan is 100 days, you take a bridge loan for duration of 6 months.
You know that the building is a commercial gold mine and once the mortgage is sanctioned, you not only pay off your bridge lender but you also have the profits from the building worth 6 months. If that is more than the interest that you paid, then you have got yourself a good deal.
However, what if things do not go according to plan? The building did not make the profit that you expected? Enter the exit strategy!
Importance of an exit strategy
This comes in when things did not go according to plan. It is not only a way to bail you out but a scenario that a bridge lender will expect you to have though about before applying for the loan.
There are two ways of exiting from a bridge loan. The first way is to secure a replacement financing. That can be short term or long term based on your future predictions. The other is by selling the collateral. This will help you repay the loan and walk away with whatever you gained from the deal.
Quick Bailout Solution: Bridge Loan
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