Legal Definitions - swing loan

A swing loan, also commonly known as a bridge loan, is a type of short-term financing designed to cover a temporary gap between two financial transactions. It provides immediate funds for a new purchase or investment, with the expectation that a future event, such as the sale of an existing asset or the receipt of anticipated funds, will repay the loan within a relatively short period, often a few months to a year.

Here are some examples illustrating how a swing loan works:

• Example 1: Residential Real Estate Transition

  Sarah and Tom want to buy a new house that just came on the market, but their current home hasn't sold yet. They don't want to miss out on their dream home, but they need the equity from their old house to make the down payment on the new one. They can apply for a swing loan, which provides them with the necessary funds to close on the new house immediately. Once their old house sells, they use the proceeds from that sale to pay off the swing loan. This allows them to "swing" from one property to the next without the stress of needing to sell their old home first.

• Example 2: Business Asset Acquisition

  A small manufacturing company, "Innovate Tech," needs to purchase a new, advanced piece of machinery to fulfill a large, lucrative contract. However, the payment for this contract won't be received for another three months, and they don't have enough cash on hand for the immediate purchase. Innovate Tech secures a swing loan to buy the machinery now. This allows them to start production and meet the contract deadline. When the client's payment arrives in three months, Innovate Tech uses those funds to repay the swing loan, bridging the financial gap between the equipment purchase and the contract payment.

• Example 3: Investment Property Purchase

  An experienced real estate investor, David, identifies an excellent opportunity to purchase a distressed property at a very favorable price. He plans to renovate and resell it quickly. However, the funds from his last investment property sale are still tied up in escrow and won't be released for another two weeks. To avoid losing the new property to another buyer, David obtains a swing loan. This loan provides him with the immediate capital to close on the distressed property. Once the funds from his previous sale are released from escrow, he promptly uses them to repay the swing loan, allowing him to seize the new investment opportunity without delay.