Bridging & Mezzanine funding

There will come some situations in life where you’re looking at selling off an existing house or property to replace it with a new property due to many reasons. In such situations, a home loan may not make sense since the intention is to fund the new property from the sale continues received from the old one.

In such a situation, a Bridge Loan or a mezzanine loan comes handy. It is a short term loan granted to help the mortgagor fulfill the financial requirements such as buying a new home or anything else.

Before that you should have enough knowledge about bridging loans and mezzanine loans and.

A bridge loan is a short-term loan used until a person or company make safe the permanent financing or removes an existing compulsion. This type of financing allows the user to meet current responsibilities by providing immediate cash flow. The loans are short term, and it validates up to one year, with relatively high interest rates and are usually backed by some form of pledge such as real estate or portfolio bridging loans and finance for property development.

Where as a mezzanine loan is basically a type of bridge loan, which is also used to provide short-term financing for small business owners and financiers. The key difference between mezzanine loan and a bridge loan, is that mezzanine loans are not backed by property as security.

Let’s have a look on the interest rates between the two loans.

The interest rates for bridging loans vary between 13.50% pa to 18.00% pa.  depending on the bank. You can ask with the bank directly on the latest rates .Leading banks and financial institutions such as HDFC, Bank of Baroda, SBI, ICICI and others deals with Bridge Loans for short term housing requirements.

Where as, mezzanine loans typically vary between 12% to 20%, which is relatively high when matched to other financing options. However, the interest waged on mezzanine loans is tax-deductible. Many financial experts believe that mezzanine loans are easier to achieve than other funding options, as mortgagors can calculate their interest into the balance of the loan.

Although rare, bridge loans and mezzanine loans sometimes pop up in the real estate industry. If a buyer has a delay between the purchase of one property and the sale of another property, he may turn to a bridge loan or a mezzanine loan. Typically, investors only offer real estate bridge loans to pledgers with excellent credit ratings and low debt-to-income ratios. This type of loans roll the mortgages of two houses together, giving the buyer elasticity as he waits for his old house to sell.

So Finally, we can say that Bridge loans and mezzanine loans are two common financing options available for small businesses and industrialists. As they both used for short-term financing, offering immediate cash when you need it most.