Is bridge financing a good option in today’s financial landscape? Find out by reading this blog.
Today’s economy is very different from what it used to be decades ago, and keeps ebbing and flowing to reflect aspects of the current social and political scene. While these shifts keep taking place, it might be difficult to know what choices to make to stay on top of things financially speaking.
Thankfully, the financial industry has expanded to such a degree that it can now cover a wide variety of needs in a myriad of forms. The Canadian market, for that matter, is especially accommodating to those wanting to round up their income and obtain loans. There are many types of loans out there that most individuals could apply for. But, there is one in particular that is different from all the rest.
What Is Bridge Financing?
The concept of bridge financing has been around for some years now. Even though many people may not know what it means exactly, they do benefit from it all throughout the country.
So what is bridge financing after all and what should you know about it? We’re going to expand on this subject in the article below, so you can make an informed decision regarding your future financial investments and the kind of funding you should apply for.
How Does Bridge Finance Work?
As its name suggests, bridge finance is an interim financing option. It can be used by companies and individuals to strengthen their short-term position until they can arrange a viable long-term financing option.
In other words, the purpose of bridge financing is to see you through financially for a short period until you can get approved for a long-term, more generous loan.
Long-term loans typically need plenty of time to get approved and have plenty of requirements that you need to meet. This is why getting one is not as easy as snapping your fingers — one of the reasons why so many people resort to another type of financing, be it the short-term kind.
This type of short-time financing is usually offered by an investment bank or venture capital firm. Having said this, it typically comes in the form of an equity investment or a loan.
You, as the borrower, will have to follow some rules concerning the short-term loan the lender has offered you. The repayment time is usually pretty short and will typically require you to pay back the entire loan anywhere between six months and one year. The interest rate is also higher than long-term loans, so make sure you take this into consideration as well when applying for one.
What Type Of Bridge Financing Is There?
In Canada, bridge financing is usually used by people who want to secure a down payment on a new home by using their current home’s equity. To put it simply and in context, if you own a home that you’re looking to sell and you’re looking to buy a new piece of real estate, it may take a while until you receive the money from the sale.
This is exactly where financing bridge loans can offer you what you need.
How Long Does a Bridge Finance Loan Take?
The answer depends on the type of lenders you talk to. For example, when you’re attempting to obtain a certain bridge loan amount from conventional lenders, such as banks or credit unions, be prepared to wait a little. As well-established institutions, they’d rather have you fill in plenty of documents and forms, which means that it could take up to a month to get approved for the money loan.
On the other hand, if you’re reaching out to a hard money or private lender for your bridge financing option, the waiting time will be shorter than it typically is for a mortgage.
The bottom line is that these types of lenders have less strict requirements and can help you to quickly add to your liquidity as soon as you’ve made the purchase of a new home.
Are Bridging Loans a Bad Idea?
A bridge loan is not a bad idea per se. This would be an urgent financing option offering you the assurance you need before you can get a more generous long-term loan. But you do need to remember a few aspects before you jump into it, regardless of how much you may need this bridge loan. Otherwise, you could risk paying a lot more than you can afford to.
First of all, you need to consider the high-interest rate for any bridge financing loan. Once you’ve buckled up for that, don’t forget about the additional fees. The costs to set up this type of financing and to prepare the legal paperwork could rise up to around $500 to $2,500.
As long as you have the funds to cover all these expenses and the need for this type of loan supersedes the financial drawbacks, then bridge financing is definitely a good idea.
How Hard Is It to Get a Bridge Loan?
This all falls into your own hands, depending on who you choose to go to. If you want to go with conventional lenders, then expect things to be more difficult, as plenty of filled-in paperwork is required for approval.
However, an experienced mortgage broker can help you get a bridge financing loan quickly without the need for unnecessary hassle and unpleasant delays. Here, at YourEquity.ca, we’re committed to supporting you in finding the financial arrangement that best suits your needs. Reach out to us and let us offer our professional expertise so you can secure your financial future.
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