It’s likely dawned on you at one point or another in your lifetime that you don’t know what a particular financial word means. Unless you work in the financial industry or you took a bunch of financial classes in college, it can often seem like people talking about finance are speaking another language. They use words like “austerity” and “small-cap”, and most people have to pull out the dictionary to know what they’re talking about. Sometimes, it seems like those working in the financial industry came up with all of these terms just to make it difficult for people outside their industry to understand what’s going on. Regardless, if you’re trying to better understand the financial industry, stocks, or borrower-lender relationships, you’re going to have to become comfortable with the lingo.
One term that’s commonly thrown around in the borrowing industry is bridge money. Most people who have never taken out a bridge loan don’t know what this term means, but it’s important for those working in certain industries, such as the real estate industry, to get a grasp of it. In its simplest form, bridge money refers to money that borrowers get until the rest of their financing comes through. For example, let’s say there’s a company that needs some money to make an acquisition. They’ve been approved for a loan to make the acquisition happen, but the money isn’t going to come through for a few more weeks. If they don’t move on their acquisition now, it’s going to fall through and they’re going to be left empty-handed. In such an instance, the company might make the decision to take a bridge loan to cover the cost of the acquisition with the agreement that they’ll pay back the bridge loan as soon as the rest of their financing comes through. The bridge loan will come with a decently-sized interest rate, but it’s worth it to the company long-term to pay that interest if it means they can make the acquisition. The borrower will give them the money with the expectation that in a few weeks when the rest of the financing comes through, the company will pay back the bridge loan with the interest.
This type of private money loan is most commonly used in the real estate industry. Many professionals who make their living by buying property and then selling it for a profit use bridge loans to make their purchases until their other loans, typically from banks, come through. They’ll take out a bridge loan so they can make their real estate purchase before somebody else does, and then when the rest of their financing comes through they’ll pay back the money they took from the private lender. Firms like Montegra Capital Resources exist to provide these types of loans to their clients with the agreement that the bridge money will be paid back within a very short period of time. These types of loans make capital available to those who need it to make their purchase immediately.