Caveat loan
From Wikipedia, the free encyclopedia
A caveat loan, also known as a bridging loan or swing loan, is a short-term loan to people (investors, managers, or individuals) who need access to a large amount of money in a very short amount of time.[1]
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[edit] Misconceptions
People usually view caveat loans as being extremely expensive. This is not entirely true since they are supposed to be short-term loans (ranging between one and two months), hence viewing the annual percentage rate of the loan can often be misleading. Furthermore, the speed of the loan (often in less than a day) requires additional leverage in order for the loaner to feel that the risk is worth taking.
[edit] Uses
Caveat loans are useful while waiting for future financing to be secured. For example, if a project manager's team is between two stages of a project, and the project manager needs to pay construction workers in the interim, he might take out a caveat loan to pay them for the month where they don't have financing, and then repay the loaning institution once the second stage begins.[2] They are also used to quickly secure a real-estate transaction, prevent a person from defaulting on a loan, and to partake in a spur-of-the-moment commercial opportunity.
[edit] Availability
Due to the speculative nature of caveat loans, most banks do not offer them. There are a number of low-grade institutions that offer them. The sometimes shady nature of this business makes it at times comparable to that of loan sharks. That said, there are a number of reputable institutions that offer caveat loans. A mortgage company is also a great source for a bridge loan.
