Bridge Swing LoanLoan bridge swing
Guideline on Bridge Financing
Christian Faes, Principal, Montello Bridge Fund. This is a short-term loan that allows the borrowers a certain amount of money before the loan is refinanced. This means that it represents a "bridge" for the borrowers. It is important that a bridge loan is also forwarded to the borrowers within a relatively brief timeframe.
As a rule, a bridge loan is also backed by a mortgage/fees, similar to a loan from a local banc. Interim financing is often described as a " short-term loan " or a " bridge loan ", " swing loan " or a " conditional loan ", according to collateral and case law.
Overdrafts in the United States are often called " soft currency credits ". Interim financing can sometimes also be described as'mezzanine finance', although an interim loan is usually technical and not a meszanine or junior loan. Temporary financing is usually provided as a short-term loan for a less than 12-month maturity.
These are different explanation why a recipient may condition a complex number security interest debt, including: Financing the acquisition of an auctioned piece of land; - Taking advantage of an occasion that demands rapid processing (e.g. acquisition of an administrator in bankruptcy); - raising short-term funds against own funds in a piece of land; - financing the renovation of a piece of land.
Also, there are different kinds of bridge loans: Bridge closed': Relates to a bridge loan when there is a pre-defined and secure outcome that the obligor has to pay back the bridge loan before the obligor borrows the real bridge loan. One example of a bridge that has been sealed would be if the borrowers had a financing proposal from a major creditor before receiving the interim financing.
Such cases may still require the bridge loan for the purpose of settling a deal quickly or otherwise seizing a particular chance. An enclosed bridge is often used to pay for a piece of real estate acquired at auctions. Under these circumstances, the borrowing party may already have a financing proposal from a bank with which the borrowing party has a relation.
As a result, a bridge loan allows the borrowers to complete the real estate operation (usually within 30 working days following the auction) and avoids fines that may arise if the operation is not completed on the date of completion. "Open Bridge": Relates to a bridge loan if the debtor has no specific outflow.
In the case of bridge financing by creditors, it is usually necessary for the borrowers to have a specific "exit strategy" for the repayment of the loan. In the case of an open bridge loan, however, the exits are not secure. One example of an open bridge would be if the debtor was obliged to complete a deal in a very tight timeframe and had no opportunity to organise straight forward financing for the refinancing.
However, in such cases, the beneficiary may have a long-standing relation with a banking institution that is highly likely to advances the loan, but an request for such financing has not yet been made to the banking institution. Throughout the " loan crunch ", the difference between a bridge and an open bridge loan is clearly unclear.
The security with which the banks' majorstream creditors assume the financing is often unclear - even in circumstances where a debtor is particularly creditworthy or the relevant assets represent a very sound case. Consequently, a loan that looks like a bridge that has been shut, but in fact is an open bridging loan.
Besides the interest rates, the borrowers are usually obliged to pay: Lawyer's costs for the preparation of loan documents. Another term frequently used in the context of interim financing: "first charge": Relates to the order of priority of the collateral for the bridge loan. An " First Charges " loan is a loan backed by a first mortgage/charge against the collateral.
An insurer is holding the position of senor in a loan. Relates to the order in which the collateral for the bridge loan is ranked. Financing by mezzanine: Sometimes used as an exchangeable interim financing concept. This means that the debtor has a collateral in the form of a secured bond (mezzanine or subordinated) against the first creditor.