What is bridge finance and how does it work?
Sometimes referred to as a bridge loan, bridging finance is a form of interim financing that companies use to shore up their short-term financial prospects while their long-term finances are still taking shape.
By providing short-term capital, bridging finance empowers companies, landlords and other entities to develop a sustainable business model and create ongoing liquidity. Bridging loans are most prevalent in the property industry and are almost always backed by the properties themselves.
Bridging finance is like other loans but is distinguished by its purpose. It works by providing a short-term loan to cover immediate investment obligations or to “bridge” the gap between an investment and the revenue stream it is expected to generate. As an example, imagine that you invest in a duplex you intend to use as a rental property. The building has immediate and ongoing maintenance and compliance expenses (some rotted floorboards and a deficient HVAC system, perhaps) that you hope to cover with the rent you collect on the property. However, because you have just purchased the property, you don’t yet have any rent coming in. Bridging finance will provide you with the capital you need to cover these expenses while you seek out your first tenants.
Even if you are purchasing a new home for yourself, a bridge loan could cover the immediate costs – mortgage down payment, moving costs, etc. – you had hoped to pay for by selling your old home if you haven’t yet found a buyer.
What are the benefits of bridge finance?
Bridging finance is an ideal solution when business capital is immediately necessary. Even though bridging finance NZ wide provides much-needed capital at a time when revenue streams aren’t well established or even guaranteed, assets as valuable as property provide excellent loan security to drive down interest rates.
Most importantly, bridge finance alleviates the pressure to make every loose end line up during your settlement. Your old home need not be sold the moment you put down your mortgage deposit. You need not have a full list of tenants signed and ready to move in at the moment you purchase that new rental property.
Occasionally, when properties are purchased under value, bridging loan companies might base their loan on their full value. This means you could potentially purchase a property without first paying a deposit.
Bridging finance is your short-term solution to long-term success
Don’t let the uncertainty of a turbulent acquisition period deter you from making the investments today that could shape your future. CFS Bridge Finance offers high-yield project financing to see your investments through to stable, sustainable income.
Contact CFS Bridge Finance today to learn more.