A bridge loan is basically a short term loan — usually repaid in less than a year. The reason for a bridge loan, or bridging finance, is to cover the expenses of the borrower until a more long term loan or funding is secured. Bridge loans provide immediate cash flow for borrowers as payment for various abrupt financial obligations while waiting for the approval of standing deals or contracts.

You can expect your bridge loan to carry a high rate of interest, and you will need to secure it with collateral. Bridge loans work by bridging the gap between the time a borrower meets his immediate financial obligations until such time he can avail of a more permanent and long term loan. People use bridge loans in numerous financial situations.

Business owners may acquire bridge loans to finance the needed working capital of their business while awaiting equity financing deals which could only be completed after several months.

People commonly use bridge loans when they are selling a home. There can be times when the real estate market in a given area is moving slowly, or there can be a home that is proving a hard sell. The owners of the home who are selling the house and want to move may take out a bridge loan so that they can pay their utility and food bills, as well as other financial obligations, while they await the sale of their home and the proceeds that they get from that. Or they may use the bridging finance as “chain breaking”, meaning they purchase an already-desired new house while they are still awaiting the sale of their current house.

Bridge loans are often used to protect or improve one’s credit record. A borrower may apply for a bridge loan to finance payment of an outstanding debt, thus making a good credit standing and allowing one to apply for other loans that are more permanent and larger in amount. While they are still moving from one job to another, or waiting to be hired, people may find bridge loans indispensable. Likewise, people can also use of these types of loans to cover cost of relocation demanded by a new job.

Bridging finance can often be acquired in just 24 hours, as the high interest rate, short duration, and collateral backing alleviate the need for extensive background checks and risk consideration.