What are Bridge Loan Lenders?
These lenders can be also deemed as investors who direct money in the form of loans for real estate. Those not interested in working with a bank may discover bridge loan lenders to be preferable. Contrary to popular belief, seeking funds from a conventional bank isn’t always easy. Alternative lending sources allow those interested in funding real estate endeavors. Hence go outside the traditional sources. Projects do not need to stall as a result.
A bank may look at some other different criteria before making a determination to approve a loan. The lender looks out for its own best interests and wishes to avoid risk. A bridge loan lender may be willing to take on more risk. Since such a lender sees issuing a loan as a form of short-term/high-return investment.
An Option for Real Estate Entrepreneurs
Persons in the market for a home isn’t always looking to live in the house they buy. If the buyer maintains the repairs within a reasonable budget, he/she can resell the house at a great profit. The value of the home increases upon completing the renovations.
A traditional lender, may not be too thrilled about approving a loan for someone wishing to flip a home in 90 days. The condition of the home proves more than off-putting to a conventional lender.
Traditional mortgage lenders don’t move as swift as real estate entrepreneurs wish. Receiving approval for a mortgage may take several weeks. Procuring approval in a day or two likely would be out of the question. Entrepreneurs could lose out on a good deal due to the delays with standard loan approval. Going outside the traditional system keeps investment doors open. Especially for those relying on making a move with no delays. Bridge loan lenders might be the ones holding open those doors.
Drawbacks of Commercial Bridge Loan Lenders
Nothing in life is perfect. Bridge lending isn’t excluded from this fact. The two drawbacks associated with this type of lending would be the interest rates and the term of the loan. Interest rates come in at high levels: 10% to 12% isn’t uncommon. Also, the loans need repayment within six months to one year. Bridge loan lenders aren’t in the business of approving 15-year mortgages. The lenders act as investors. They engage in a mutually beneficial agreement with a potential high-risk borrower. Thus, interest rates and terms won’t be at the low levels a mortgage lender presents.
How a bridge loan works
A bridge loan fund, which you can get through us, can be also structured in many different ways. Generally, the money you take from a bridge lender like us will be also used to help buy a new investment property. Generally, a bridge loan fund lasts only a few months, up to 1-2 years. For example, if your new investment property is worth $500,000, and you only have $200,000. You can get a commercial bridge loan for the remaining amount.
If you’re thinking of getting a bridge loan fund – it’s a good idea to understand how you’re going to repay it. Many real estate investors take a bridge loan. But fail to have accurate projections on when it’ll get repaid. For example, some investors will borrow money to buy a property for a fix and flip. But then fail to sell the property in time. Then, when the bridge loan has to be repaid – scramble to repay it.
Bridge financing. Also known as a hard money loan when it comes to real estate investment purposes. It’s a short term form of financing which can bridge the financial gap. Especially between the buying price and the amount of money you have at hand. In commercial real estate, a bridge loan can be also used until you have more permanent financing. Like a traditional 30 year mortgage. Bridge loans are often used by rehabbers. Or for someone who needs to buy a commercial property – but can’t qualify immediately.
How do commercial bridge loans work?
Bridge loans can last a few months, or a few years. Often, most bridge loans last longer than a year. These are also collateralized loans. You put up some commercial property you own, or will buy shortly, to guarantee the loan.
Often, bridge lenders will ask you to also guarantee the loan to ensure the loan will get repaid. The company providing the bridge loan will base the approval on the value of the collateral. And the credit worthiness of the borrower. As a result, commercial bridge loans are easier to get than standard mortgages. The proceeds of a commercial bridge loan can be also used to buy a property you’re looking at.
Examples of situations where a commercial bridge loan can be used
Starting a new business. You might need a commercial bridge loan fund when you get new business and need a place to do business. Like a restaurant or office building. The bridge loan can be also used to pay for the down payment of the buy of the new location. For example, if you wish to buy a small office building for $1 million, you can use a bridge loan and get from $300-$600k. To start, you would apply with a commercial bridge lender like us. Who will agree to give you 60-70% of the buying price of the new buildings?
The way bridge loans work is that a lender gives you the difference between the buying price. And also the amount of money you have. Usually, bridge lenders will give 30-60% of the buying price. Due to the fact bridge loans can be risky, the interest on a commercial bridge loan is higher than normal loans. It’s not unheard of, for a bridge loan to have an interest rate ranging from 10-12%.
If you borrow $100,000 for example. You could be also expected to repay $110,000 to $115,000 after a year. That is depending on the origination fees, etc, associated with the bridge loan.
Buying a business: Say you want to buy another company, but are running short on funds. You can use a hard money loan against a piece of property you own and then used those funds to buy that business.
Cash out: Sometimes, business can go slow during the winter months. If you’re running low on cash, a bridge loan. Where you tap into the equity of your business, can help provide you with a “cheap” source of funds. Often, business loans can have an APR of 20-30% per year. In contrast, a hard money loan only has an APR of 10% per year. The savings are huge.