A bridge loan that is meant to be refinanced in a year raises an obvious question: what happens if you repay in six months? The answer is in three clauses that deserve attention before signing.
Open or closed
An open loan can be repaid at any time without penalty beyond notice. A closed loan cannot be repaid before maturity, or only with a penalty. Most private bridge loans are closed for a minimum period and open after it. The federal Interest Act lets individuals prepay a mortgage with a term longer than five years once five years have passed, but it does not apply to corporate borrowers, so for most commercial loans the contract governs.
Minimum interest
The lender’s costs are front-loaded, so most term sheets guarantee a minimum number of months of interest, commonly three to six. Repay on day sixty and you pay interest to the end of the minimum period. It is a fair trade for speed, provided the period is short and clearly stated.
Exit and extension fees
- Exit fee: a percentage of the loan paid at repayment; ask whether it applies on a scheduled maturity or only on early repayment
- Extension fee: what it costs to extend if the exit is late, and whether the rate changes
- Discharge costs: legal fees to release security, usually modest
Ask for all three in writing and model the all-in cost at six, twelve and eighteen months. Our term sheets state the minimum interest period, open prepayment after it and no exit fee on a scheduled repayment.
Have a situation like this? Tell us about the deal and a principal will respond within two business days. Cascade lends to businesses only, in Canadian dollars, and every rate we quote is an annual rate.
