Bridge financing is a loan made for a short term to "bridge over" the time gap between completing the purchase of one property an finalizing arrangements to pay for it. A typical example of bridge financing arises when a party purchases a property and the closing date for such purchase is scheduled prior to the sale of his/her existing property.
EXAMPLE:
Party A has entered into an Agreement of Purchase and Sale (Agreement) to purchase a property on October 1st but his/her scheduled closing date for the sale of his existing property is scheduled for October 31st. As such, Party A requires bridge financing (short term loan) to purchase his/her new property on October 1st, with the understanding that upon selling his existing property on October 31st, the bridge loan would be paid back in full in addition to any interest to be paid to the lender at a rate agreed upon by Party A and the lender prior to the advancement of the bridge loan.
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