What Does Bridge Loan Mean?
A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.

Also known as "interim financing", "gap financing" or a "swing loan".

A bridge loan, as a short-term loan can last a period of anywhere between 2 weeks or 3 years.

Characteristics
Bridge loan interest rates are usually 12-15%, with typical terms of up to 12 months 2-4 points may be charged. Loan-to-value (LTV) ratios generally do not exceed 65% for commercial properties, or 80% for residential properties, based on appraised value.

A bridge loan may be closed, meaning it is available for a predetermined timeframe, or open in that there is no fixed payoff date (although there may be a required payoff after a certain time).

A first charge bridging loan is generally available at a higher LTV than a second charge bridging loan due to the lower level of risk involved, many UK lenders will steer clear of second charge lending altogether.

Lower LTV's may also attract lower rates again representing the lower level of underwriting risk although front-end fees, lenders legal fees, and valuation payments may remain fixed.

First charge bridging loans on residential property become FSA regulated requiring the same procedure as if a mortgage was being put into place albeit for a shorter time-frame, again due to the additional regulation many UK lenders will avoid this type of bridging loan.

Availability
Most banks do not offer real estate bridge loans because the speculative nature, risk, lack of full documentation, and other factors, do not fit the bank's lending criteria. A bank that issued bridge loans might have difficulty justifying its lending practice to its investors and government regulators. Bridge loans are therefore more likely to come from individuals, investment pools, and businesses that make a practice of the higher-interest loans.

Examples
* A bridge loan is often obtained by developers to carry a project while permit approval is sought. Because there is no guarantee the project will happen, the loan might be at a high interest rate and from a specialized lending source that will accept the risk. Once the project is fully entitled, it becomes eligible for loans from more conventional sources that are at lower-interest, for a longer term, and in a greater amount. A construction loan would then be obtained to take out the bridge loan and fund completion of the project.

(I hope this helps some.)

http://en.wikipedia.org/wiki/Bridge_loan
http://www.investopedia.com/terms/b/bridgeloan.asp
Source(s):
http://en.wikipedia.org/wiki/Bridge_loan
http://www.investopedia.com/terms/b/bridgeloan.asp

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