Bridge Loan

A bridge loan is 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. Bridge loans are also known as interim financing, gap financing or a swing loan.

As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. For an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner some flexibility.

Wrap-Around Loans

A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. A seller will usually incorporate a late charge to encourage the buyer to make monthly loan payments on time.

A wrap-around is attractive to lenders because they can leverage a lower interest rate on the existing mortgage into a higher yield for themselves. Usually, but not always, the lender is the seller. In general, only assumable loans are wrappable.