Bridge financing. An overview

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Bridge financing is the generic term for credit made through short-term or interim financing in
respect of certain transactions such as real estate, business purchases. Basically, there are two
areas of bridge financing and these include the field of real estate and corporate finance.

In some European countries there are concepts of pre-and interim financing which exist mainly
in the real estate sector. They are typically used in connection with short-term credit lines for
which they bridge the period between the payment of the borrower and the final real estate
financing. The final financing serves to replace the interim (credit relief).

Another form of bridge financing is employed by commercial enterprises prior to their initial
public offering, in order to secure operational capital. Such funds are often provided courtesy of
an investment bank underwriting the new issue. For its part the company will grant some of its
stock at a discount of the issue price as a means for the underwriters to sufficiently offset the

In some instances, bridge financing can also be offered by a banking concern underwriting an
offering of bonds. In the event that the bank fails to dispose a firm's bonds to institutional
buyers, they purchase the bonds themselves on less favorable terms.

In international banking, bridge financing plays a part in establishing strategic instruments of
corporate financing. Acquisition by investors often requires a high capital investment and is
usually performed under severe time pressure. If the purchase price is due immediately or
cannot be entirely satisfied from existing funding sources and final forms of financing are not yet
known, a bridge financing in the form of a pre-financing is required.

Acquisitions often result in such short notice, which means a solid financial plan cannot be
aligned, thus leaving room for more spontaneous financing solutions such as bridge financing.
During the term of the bridge financing, the investor has sufficient time to decide on the final
funding sources and to provide for the replacement of the bridge financing. Bridge financing in
this form actually constitutes a pre-financing.

Typical construction loans depend on the progress of construction (for instance, 25% of the loan
payable on completion of the basement, an additional 25% for white, another for finished interior
installation, and balance upon delivery).

Disbursements therefrom are consequently effected in the construction phase, and not always
available as needed to cover the costs incurred in short intervals. To comply with these
conditions, an interim financing is sought, which is readily adaptable to the payment
requirements, without payment of quotas.

A property loan is always present if only the general requirements for consumer loan are met.
This is the dependence of the loans granted by a mortgage lien (or compliance with the
requirements) and also the granting of the loan or an appropriate interim to conditions to be
considered for these loans as market rates.

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