A bridge loan is a short-term loan that provides interim (in-between) financing for businesses and personal use. They are often taken out in medium to higher amounts for periods ranging anywhere from a few weeks to a few years. They help the person or business stabilize financially until the find a more permanent source of financing or until the business is able to build its capital up.
Once the business or person is able to progress financially, they may use their new financing or profits to pay back the bridge loan. Thus, in the long run, bridge loans can sometimes provide better options and more success. In a real estate setting, a bridge loan can sometimes be used to help close a deal, or to prevent foreclosure.
What Are Some Characteristics of Bridge Loans?
Bridge loans sometimes have the following characteristics:
- Shorter/easier approval steps (since the loan is often paid back in a short amount of time)
- May be associated with higher monthly/term payments
- May be associated with higher interest rates
Bridge loan terms can vary according to the lender’s offers, and according to the amount of risk involved (bridge loans can sometimes be associated with a risk of default by the borrower).
What Is the Difference between a Bridge Loan and a Hard Money Loan?
Hard money loans are loans that are backed by property (either residential or commercial). Both bridge loans and hard money loans are similar in that they’re both typically sought "in a pinch" or during hard financial times. They can also both be associated with less strict, informal lending approval processes.
On the other hand, hard money loans generally focus on the fact that the borrower has put up property interests as collateral for the loan. Bridge loans focus on the shorter duration and the specific purpose of the loan for reaching longer term goals (hence the term, "bridge"). Bridge loans may or may not be backed by property like hard money loans are.
What If I Have a Legal Dispute over a Bridge Loan?
Bridge loans can be associated with various legal conflicts, including: cases of lender or borrower fraud; breaches of contract; default/non-payment, and various other legal issues. In such cases, these disputes can lead to lawsuits for damages, fines for statutory violations (for the lender), and negative effects on credit scores. In such cases, a legal investigation into the matter may be necessary, especially if the dispute is widespread among a larger consumer base.
Should I Hire a Lawyer for Help with Bridge Loans?
Bridge loans can help a person or business accomplish specific long-term goals. However, they are associated with various requirements, as well as risks and drawbacks that borrowers should be aware of. You may wish to hire a qualified bankruptcy lawyer if you need help applying for, renegotiating, or dealing with a bridge loan. Your attorney can explain your rights under the laws in your area and can also help you file a lawsuit if you encounter any legal conflicts that need resolving.