Most types of financial tools are named after their structure or the assets they use for collateral, but bridge loans are one of the big exceptions. They can come in a variety of structures and term lengths, but what they have in common is that they are designed to provide a financial bridge between today and an anticipated payday down the road. There are a few ways they can be set up, and it probably should not be surprising to find the subtypes of bridge loans also generally group up according to their purpose.
Opportunity Loan Programs
A bridge loan designed to provide investors with the chance to make a move even when they do not have the capital to cover it is generally referred to as an opportunity loan. Often, they are secured with the asset the investor is closing on, as is the case with fix and flip financing for short-term real estate investment. Bridge loans can also be used to provide working capital to businesses based on the value of the equity in commercial real estate. This is known as equity bridge financing.
Hardship Loans & Emergency Programs
There is an entire subcategory of loan tools that are specifically designed to let you use any asset needed to cover the costs of an emergency. They can use real estate equity-like working capital loans, but they also work with 401k funds as collateral and other high value assets with tangible equity in them. Refinance equipment or vehicles to avoid cash shortfalls while you wait out life’s little emergencies. It’s what bridge loans are meant to help you do.
Probate & Trust Loans
When negotiating the buyout of trust shares or the disposition of assets in probate, it can be helpful to put together bridge loan packages using the value of the trust or estate as collateral. The result is a cost effective loan that leaves the assets in the trust or estate intact while providing the capital needed to close out key parties looking to take a cash payout and leave the situation. It is a unique need with unique bridge loans designed just to cater to it.
Finding a Bridge Lender
Bridge loan programs are offered by banks, private lenders, financing firms, and credit unions. Each has its own approach, with longer approval times often leading to lower capital costs. On the other hand, if you need a bridge loan, you probably do not need to wait a long time to get it. That’s where alternative lenders really shine, as their operations are built around fast approval determinations.