What Is A Bridging Loan?



A bridging loan will finance short-term financial bottlenecks. On which occasions are the loans used? Which features are there? The most important questions are answered here.

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Bridging loans are used to finance short-term bottlenecks


There is no universal definition of bridging loans. The loans are used to overcome or anticipate liquidity bottlenecks and can be used by households as well as by companies. Typical for the loans is a relatively short term of usually not more than six months.


Use in real estate financing


If a construction project is to be implemented immediately and a required payout from a home savings contract is only available in a few months, a loan for bridging is required. The loan is used to pre-finance the purchase price or construction measures. The repayment is final. The lending is usually carried out by the same bank, which also pays the later real estate loan or home savings loan.


Use in companies

Use in companies

Companies need interim financing z. B. for pre-financing order peaks. With the bridging loan, for example, the raw materials required for production are procured and wages are paid out. The repayment is made when the orders are settled and paid in a sum. Companies apply for loans from banks.


Use for private purposes


Private households need bridging loans z. For example, where there is a direct one-time or current expenditure required to finance the receipt of one or more monthly salaries. The loans are repaid in one total or in installments.

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Essential features of bridging loans


How exactly a bridging loan is designed depends on the requirements of the borrower. Some essential characteristics can be distinguished.


Secured or unsecured?

Secured or unsecured?

If a loan is used for the pre-financing of a prospective Bauspar sum, the lending is usually secured, ie as a mortgage loan. Also companies usually have to provide real collateral. Secured loans are much cheaper than loans that are not collateralized or only with the personal credit of a private individual.


Variable or fixed interest?

Variable or fixed interest?

Due to the manageable maturities of bridging loans, a fixed interest rate is not mandatory; the cost risk from rising interest rates is limited. A variable interest rate is based on reference interest rates such. B. the 3-month Euribor. The lending rate is calculated from the reference interest rate and a contractually agreed surcharge.


Credit line or payout?


In the run-up to borrowing, it may not be clear exactly how much liquidity is needed. Then there are credit lines instead of single payment loans. The credit line can be accessed flexibly after granting – eg. B. to pay bills. Credit lines are available to both corporates and individuals (discretionary or general credit).


Bank or special provider?


Above all, if smaller amounts of credit from a few hundred euros in the room and a quick payout is desired to find credit seekers for a few years increasingly on providers of short-term loans . These provide loan amounts from approx. 100 to approx. 3,000 EUR with a 1-6 months term. The applications are submitted via the Internet, the credit note is often credited on the same day.


Advantage: The liquidity shortage is overcome


Bridging loans make it possible to overcome or avoid liquidity bottlenecks without a long-term contractual obligation. If the necessary liquidity from other sources is finally available, the loan, including the interest, will be repaid and the matter will be closed. Depending on the contract, unused credit lines may still be available.


Disadvantage: If it is urgent, it will be expensive

 Disadvantage: If it is urgent, it will be expensive

If a bridging loan is urgently needed, the cost of borrowing can be very high. This applies in particular to short-term loans to private individuals. These are measured at the small credit amounts, sometimes quite high charges for flash transfers, etc. Ratenzahlungsmöglichkei t (supplier-dependent) significantly more expensive.


The conclusion to the bridging loan

 With a bridging loan, impending financial bottlenecks can, at best, be anticipated or existing bottlenecks overcome. The loans are considered in advance of real estate financing as well as for companies and to finance one-off or current costs in private households. Especially the latter have to expect high costs, if it has to go fast.

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