Bridge Finance – Features, Introduction, Examples, Methods


By VRP

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Bridge finance is a type of short-term loan which acts provides a monetary assistance to fulfill the short term liquidity requirements.

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Bridge finance: Intro

As the name suggests it functions as a bridge between the initial period and the time till one can get a long-term source of finance to fulfill his requirements.It is a gap financing arrangement.

Example:

Unexpectedly as a result cof their exceptionally great quality they got a project worth 1 crores, For this the business went to his lender and applied for the loan. If ABC Ltd goes to another lending institution/ same lending institution to obtain a loan which save them till the very first loan is disbursed, it is called as bridge loan.

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Functions of Bridge Finance:

( 1) Short term oriented:

Bridge loans are oriented for brief duration i.e less than a year. The primary goal of bridge loan is to help with the financial assistance to fulfill brief term financial requirements.

( 2) High interest expenses:

As they are brief term oriented and the repayment period is likewise less compared to the long-lasting commercial loans, they bring greater interest costs. As they come to rescue in your economically undesirable conditions absolutely they lead to high interest expense.

( 3) Demands collateral security:

They require collateral security. The leading gamers who provide swing loans in the economy request for the collateral security in practically all the cases. The value of the security one can keep as collateral will directly affect the quantity of loan the loan provider is willing to give.

( 4) Alternative modes of payment:

Bridge loans help with to repay the loan either prior to or after the real permanent source of financing is protected. If they choose to repay the loan after the main source of finance is given then he can do it out of the funds given by the long-term source of funding for which they might have been waited.

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