Bridging loans may help Greece get economy on track

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Greece has asked for a €7bn (£5.93bn) bridging loan to help the country’s finances, Sky News reported in July 2016.

Though the amount loaned is obviously much bigger, a country bridging loan operates in a similar way to a bridging loan for a company or individual.

Greece is faced with the need to pay back €4.2bn (£3.56bn) to the European Central Bank (ECB). Since the Mediterranean country could not afford this, European ministers have agreed to a short-term bridging loan of €7bn to allow Greece to repay this amount and to keep its economy going. Over the next three years, Greece will sell off some of its assets to pay back this loan and other money it owes.

The European Union ministers have asked Greece to also save money by reforming pensions and increasing taxes. The European Union is in effect formulating an exit strategy, which is a standard condition of a bridging loan. An exit strategy establishes how the money will be raised to repay the loan, and when the repayment is due.

A bridging loan for a company could be used to purchase machinery, with the loan repaid from money raised by the increased productivity the machine creates

A bridging loan for an individual is usually used to complete a property sale while waiting for an existing property to be sold. However, whether it is a country, business or individual, as long as an exit strategy is in place, a bridging loan is usually a viable solution for short-term cash requirements.

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