What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community.

Bridge loan

A Bridge loan is a short-term loan that companies and individuals use to bridge the gap between money they don't have and money they need right then.

Expanded Definition

The interim financing vehicles known as bridge loans or swing loans are usually used to secure a larger pool of money. The loan isn't spent on renovating offices or repairing factory machines. Something like buying a neighboring property to expand a factory and double production would more likely be the use of a bridge loan. Or if you want to buy a rundown house, fix it up, and sell it. If a bank won't lend you the money via regular channels, a bridge loan might work.

Individuals often use bridge loans when buying a new home, as it is sometimes necessary to close on the purchased home before cash is available from the sale of the first home. A bridge loan provides cash to cover closing costs by borrowing against the equity in the house you are selling. Bridge loans are usually arranged through real estate agents.

Since borrowers who seek bridge loans need them quickly (really want them), and there is higher risk involved (maybe the income stream that the loan is supposed to make possible won't materialize), interest rates tend to be higher and there are various fees or obligations regular loans do not have.

Short-term loans which have borrowers turn over the pink slips to their automobiles as collateral could also be considered bridge loans.

Related Fool Articles

  • [link link title]

Related Terms

Recent Mentions on Fool.com