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Investing 101: What Is a Bridge Loan?

There are times in your life, especially if you're dealing with any kind of real estate, wherein you may need a short term loan rather than a long term loan. For many people, long term loans are preferable because they allow for more time through which you can pay off the loan. But if you don't need that amount of time, there is an additional option available for you. That would be the bridge loan, which is a type of short term loan used until the borrower is able to secure long term financing. The borrower may also seek to remove an existing obligation while securing a bridge loan.

How Do Bridge Loans Work?

You may also hear about a bridge loan being referred to as interim financing, gap loans, or swing loans. The idea behind them is that they're essentially bridging a gap. For example, if you're interested in buying a home but have yet to sell your current home, you can secure a bridge loan in order to finance your new purchase. Once your original home is sold, you will only have a short term loan to deal with, rather than a loan that you would be paying off for years after the purchase of the new home and the sale of the original one.

Do Bridge Loans Work Well for Farmers?

With that being said, bridge loans are not the only options for people seeking to buy a new home. They also work quite well as farm loans. According to Statista, it's estimated that in 2020 alone, there were over two million farms in the United States. Many farmers work on a fairly tight budget, with profits that can be unpredictable. Bridge loans are often also more flexible than traditional loans, allowing for flexibility that farmers often need, especially in terms of payback. Farmers are also potentially able to buy out investment partners with bridge loans.

It is important to keep in mind that with bridge loans come higher interest rates. Those interested in bridge loans need to be aware that they are committing to a more short term payment plan, and with that comes a good deal of responsibility. But the flexibility of a bridge loan can be a great option for both individuals looking to invest in personal homes and those that are specifically interested in farm properties. For more details on bridge loans

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