A bridge loan is a short-term loan used to quickly close on a property, retrieve real estate from foreclosure, or take advantage of a price discount. The “bridge” buys the borrower sufficient time to arrange traditional long-term financing, improve/re-position a property for re-sale or close on the sale of another piece of property. A bridge loan is typically paid back when the collateral for the loan is sold or refinanced with a traditional lender.
Most hard money loans could be called bridge loans in that their terms are usually of short duration and will be re-paid via re-sale or re-financing. A bridge loan does not have to be a hard money loan, however. While banks and other traditional lenders can, and do, make bridge loans, a borrower will often turn to a hard money lender for a bridge loan because a hard money lender can move more quickly and will typically require less documentation.
Because the loan will be outstanding for only a short period of time, the cost of the money may not be material when looking at the transaction as a whole. The money saved by quickly taking advantage of an opportunity often more than offsets the cost of the loan needed to take advantage of that opportunity.
