General information only. This article is educational and is not financial, legal, tax or investment advice, or an offer to lend or invest. Get advice from qualified professionals about your situation.
A bridge loan is short-term financing that covers the gap between something you need to pay for now and money you expect to receive later. In Alberta, private bridge loans are most often used in real estate and business transactions where the timing of a bank or a sale does not match the timing of the deal.
Common reasons people use a bridge loan
- Buying before selling. You have found the next property but your current one has not sold or closed.
- Closing on a deadline. A purchase has a firm closing date and long-term financing will not be ready in time.
- Waiting on a refinance. A renovation, lease-up or improved financial year will qualify you for a better long-term loan, but not yet.
- Business timing. A company needs to fund a contract, acquisition or payroll while a larger financing is arranged.
How private lenders look at a bridge loan
Banks lend mostly on income and credit history. Private bridge lenders usually put more weight on three things:
- Security. What asset backs the loan, what is it worth, and what other debt is already registered against it? Lenders typically express this as a loan-to-value (LTV) ratio. Expect an appraisal or other independent evidence of value.
- Exit. How will the loan be repaid, and how confident can everyone be about that? A signed sale agreement, a refinance commitment or a firm contract is far stronger than a hope.
- Time. Bridge loans are short. If the exit slips, a borrower may face extension fees or need to refinance. Build in a buffer.
Costs to ask about
Private bridge financing usually costs more than bank financing because it is faster, more flexible and carries more risk for the lender. Before you sign, ask for every cost in writing, including:
- the interest rate and how often it is calculated and paid (many bridge loans are interest-only);
- lender and broker fees, and whether they are deducted from the advance;
- legal, appraisal and administration costs;
- prepayment terms: can you repay early, and is there a minimum interest period?
- extension and renewal fees if the exit takes longer than planned.
Add these up as a total dollar cost over your expected term. That number, not the headline rate alone, is what matters when you compare offers.
How to prepare a strong request
- A short summary: amount, purpose, timeline and exit.
- Details of the security: address or asset description, recent appraisal or valuation, and current mortgage statements.
- Evidence of the exit: listing or sale agreement, refinance letter, contract or receivable.
- Basic identification and, for a company, corporate documents and recent financial statements.
Questions to ask yourself first
Is a bridge loan the cheapest way to solve the timing problem? Sometimes a bank can extend a closing, a vendor will agree to a later date, or a line of credit is available. A private bridge loan is a good tool when speed and certainty are worth the extra cost.
If you have a bridge financing need in Alberta or elsewhere in Canada, you can submit the details and we will review the security, the exit and the timeline.