Bridging loan: How can I bridge a financial bottleneck?

Short-term loans can help to overcome financial bottlenecks in many situations. For example, to bridge financing gaps after the corona pandemic or because of the high energy prices. We will show you what you have to pay attention to and how to find a cheap bridging loan!

What is a bridging loan?

The term “bridging loan” is not subject to a general definition. Instead of a special banking product, these are various types of short-term loans that can be used to bridge financial bottlenecks.

Interim financing with a bridging loan can be considered in various situations.

How does a bridging loan work?

A bridging loan in itself functions like a regular loan. The difference lies in the shorter term, since the loan only serves to bridge a financing gap in the short term. Sometimes terms of only 1, 3 or 6 months are possible.

However, the manageably short phase of installment repayment is often offset by very high costs. Many banks charge higher fees for a bridging loan than for a normal installment loan.

In addition, short-term bridging loans are often not subject to a fixed interest rate. Bridge loans california often have variable interest rates instead. In this model, the interest rate adapts to the general market situation. The danger is that you suddenly have to pay more interest than expected when concluding the bridging loan.

If it has to be done very quickly: When is an instant loan worthwhile?

Private individuals may also be able to bridge financial bottlenecks with an instant loan. This is a normal installment loan with a free use, but it is offered exclusively by direct banks.

The special thing about it: You will receive the answer to your loan request – i.e. a forecast whether you will receive the loan – within seconds with the instant loan. The payment of the money is also much faster, usually within 1-3 days. With a normal installment loan, waiting times of 1-2 weeks are common.

Do I have to provide collateral for a bridging loan?

Yes! Although banks are not legally obliged to demand collateral even for short-term loans. In practice, however, hardly any serious provider renounces it – if only in self-interest. But it is also in your interest not to take out a loan whose debts you cannot pay. As a rule, banks therefore do not grant a bridging loan without collateral.

You can secure a loan to bridge financial bottlenecks in the short term, for example, with a guarantee, life insurance or even with your income. For loans without proof of income, therefore, stricter requirements apply to collateral. If you as a builder want to temporarily finance the allocation of construction financing or a building savings contract with a bridging loan, the property or land serves as security.

How else can I bridge a financial bottleneck?

It doesn’t always have to be a bridging loan. In the following, we will show you alternatives with which you can also design interim financing:

• Borrow money in the short term: You can bridge financial bottlenecks even without a loan. For example, you can lend things in the pawnshop, ask your employer for a special employer loan or borrow money from your circle of acquaintances. You can read what you should consider in our main article on the subject.
• Personal loan: This means a loan that private individuals give you. This is also called a peer-to-peer loan (P2P loan). With a corresponding model contract, both parties are on the safe side.
• Framework loan: With this loan, also known as “call loan”, you will receive a certain credit line from the bank (often between $2,500 and $20,000), from which you can retrieve any sum at any time. You only pay interest for the concretely borrowed sum.
• Small loan: The small loan is a mini-bridge loan for small loan amounts between $3,000 and a maximum of $5,000.
• Overdraft: The simplest, but also most expensive variant of a loan, because the overdraft interest on the current account is often above 10%. Almost always, an installment loan is cheaper than an overdraft!