BRIDGE FINANCEPresented by

NAGA PRADYUMNA REDDY. V

Bridge financing is a method of financing , used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash .

Bridge financing is commonly used when the cash flow from a sale of an asset is expected after the cash outlay for the purchase of asset.

Bridging finance arranges large sums of money to be borrowed within a short period of time. The repayment period may vary between six to twelve months and the finance is usually provided to help purchase property .

Eg-:Bridging Finance is ideal for a home owner who has yet to receive payment form the sale of their home and whishes to purchases a new property .

When selling a house the owner may not receive the cash for 90 days, but has already purchased a new home and must pay for it in 30 days .

Bridge finance covers a gap of 60 days in cash flows .

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Bridging finance ensures that you do not miss out on a deal simply because there was no cash at that point of time. Moreover it provides an easy and fast approach to processing and makes bridging finance a popular choice.

Another type of bridge financing is used by companies before their initial public offering(IPO) to obtain necessary cash for maintenance of operations .

These funds are usually supplied by the investment bank underwriting the new issue. As payment , the company acquiring bridge financing will give a no of stock at a discount of the issue price to the under writers that equally off sets the loan .

Bridge financing may be provided by banks underwriting an offering of bonds .

If the banks are unsuccessful in selling a companies bonds to qualified institutional buyers(QIBs) , they are typically required to buy the bonds from the issuing company them selves.

There are two types of bridging finance:Closed bridging finance – where the lender

and borrower settle a certain date in the future for the repayment of the loan amount and this agreement is backed by legal contracts. This type of bridging finance is secured for lenders and is usually given for a purchase of a property.

Open bridging finance – Do not define a date for repayment and the amount may be used for other purposes other than purchasing a property.

Benefits of bridging finance:Speed of processing: Bridging

finance may be raised within a few hours Compared with other types of finances may require anywhere between two to three months. The process of availing bridging finance is similar to a regular mortgage procedure, except different steps are carried out in parallel order to help speed up the process

Condition of security: Property that can require renovation or is incomplete for living may be kept as security for bridging finance. This allows the owner to complete any pending jobs and renovation work with the loan and refinance for the property.

Flexibility: Funds received from open bridging finance may be utilized for any purpose including renovation, vacation, auction financing, debt consolidation, building a new construction or sponsoring higher education. This may be ideal when you require money urgently but it is locked in assets. Bridging finance lets you spend now and repay later when funds are available.

Eligibility: A borrower with good credit history, that can provide details of income and assets to lenders, may benefit from bridging finance with better terms and rates. These types of bridging loans are called Full Status. A borrower with an adverse credit history can also benefit bridging finance but at higher rates and more stringent terms. People from wide age groups, professions and with varied credit histories are eligible for bridging finance.

Large finance: Depending on the type and value of property offered as security, duration of loan and credit history of the borrower, bridging finance can offer a large amount of money within very short period. The lender also takes into consideration if the security offered is 1st or 2nd charge while deciding the sanctioned amount.

Bridging finance is not offered by all banks or financial institutions. Many lenders perceive it as a risky move. So it is not easy to find a good professional organisation offering bridging finance at competitive rates. Most lenders tend to charge high rates of interest. Good professional lenders not only have rational charges but also help borrowers with all paper work.

INSTITUTIONS PROVIDING BRIDGE FINANCING

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