Bridge financing
In banking, bridging finance is the term used to describe a type of financing that is mostly short-term and that takes place at a time when the final financing has already been secured.
General
In contrast to pre-financing , the final financing is already (legally) fixed with bridging financing. The pre-financing bank takes on the same credit risk as with the actual financing because the follow-up financing and thus the repayment of the pre-financing loan are already secured. Bridging loans usually have a term of 1 to 2 years and are therefore subject to short-term interest rates. The interim financing can be taken into account as part of a planned consolidation and then becomes a long-term liability through the follow-up financing .
Types of bridging finance
In the context of the financing requirement calculation it is often clear that the planned sources of financing are not available when they are needed. In these cases, interim financing should be planned in order to bridge the period until the final financing. Typical situations in which bridge financing is required are:
- Home loan and savings contracts intended for financing are not yet ready for allocation (see also advance loans ). Bridging finance is granted for home loan and savings contracts if the required minimum savings have been achieved and the home loan and loan amount has not yet been allocated.
- The existing equity is not available immediately, but only after the maturity of investments ;
- Savings contracts or life insurance policies that are to be included in financing are not yet due;
- When it comes to real estate financing , the proceeds from the sale of the property being sold or to be sold often represent an essential part of the financing plan. However, this proceeds often only flow after the purchase price of the new property is due.
- Typical construction financing has only 4 to 5 payout cycles with flat rate payout rates depending on the progress of construction (25% of the loan payable upon completion of the basement ceiling , another 25% with shell construction , another 25% with finished interior installation , the rest upon handover ). The payments from this are therefore not always available in each individual construction phase, as is necessary to settle the construction bills that arise at short intervals. In order to meet the condition of the later maturity for disbursement, a bridging loan is sought that is flexibly adapted to the payment requirements without disbursement quotas. For the purpose of legally binding the bridge financing to the final financing that is not yet ready for disbursement, both an assignment of the disbursement claims and an assignment of the mortgage to the intermediary financing institution are required. The interim financing bank then has a mortgage as security for the loan in the form of an assigned owner mortgage , which extends to both the property and the property.
Legal issues
Between loans are loans within the meaning of § 488 para. 1 BGB and are subject to banking law the credit term of § 19 para. 1 Banking Act.
Demarcation
Intermediate financing is often used colloquially when it is actually a pre-financing. This includes bridge financing for company acquisitions , which has to be processed in a tight timeframe and for which a "solid" financial planning could therefore not take place. The purchase price is paid from a pre-financing loan so that the company acquirer can only ensure the final financing during the term of the pre-financing loan.
