Bridge loans are typically more expensive than conventional financing, to compensate for the additional risk.
The timing issue may arise from project phases with different cash needs and risk profiles as much as ability to secure funding.
Bridge loans are used in venture capital and other corporate finance for several purposes: In South African law immovable property is transferred via a system of registration in public registries known as Deeds Offices.
Bridging finance is also available to settle outstanding property taxes or municipal accounts or to pay transfer duties.
Short term finance similar to modern bridging loans was available in the UK as early as the 1960s, but usually only through high street banks and building societies to known customers.
This coincided with a marked decline in mainstream mortgage lending in the same period, as banks and building societies grew more reluctant to grant home loans.
[15] Open bridging loans are riskier to both the borrower and creditor due to the greater likelihood of default.
In March 2016, however, the UK will be forced to bring its existing legislation in line with that of Europe, under the pan-European Mortgage Credit Directive (MCD).
As the MCD does not recognise usage thresholds when defining a regulated contract, it is currently unclear whether the ‘40% rule’ will continue to apply.