Thinking Of A Commercial Bridge Loan?
Oct 05, 2016
You’ve found a commercial property that fits your real estate investment requirements. From your analysis, the property is well priced, and it will provide the desired return on investment (ROI) and internal rate of return (IRR). The problem is the seller is looking for a quick close and you don’t have the time to get traditional financing; nor do you have the funds available to do a full cash purchase. The good news is there is an option that will allow you to ensure you don’t miss out on a great commercial real estate investment opportunity. It’s called a commercial bridge loan.
Commercial bridge loans have created a solid niche in the real estate market over the decades because conventional lenders cannot satisfy the financing request of every borrower. A bridge loan essentially does what it says, it seals the gap between the costs of the commercial property purchase price and the challenges that prevent getting a conventional loan.
“Commercial bridge loans can be the answer you are looking for to finance your commercial real estate purchase when time and money are on short supply.”
Qualifying For A Bridge Loan
In order to be approved for commercial interim financing, you must find the right commercial bridge lender. Conventional lenders typically offer similar products and capabilities as their competitors. This is not the case with commercial bridge lenders. Not all hard money lenders are alike. Each bridge lender has their own lending parameters and appetite for lending. For instance, there are commercial bridge lenders that are purely asset based lenders. This type of bridge lender is primarily concerned with the value of the underlying asset being financed. They are not concerned with a borrower’s personal financials and they accept all credit levels.
On the opposite end of the spectrum, there are commercial bridge lenders that are fundamentally similar to conventional lenders. They can get comfortable with some property or borrower challenges a conventional lender would not overlook. However, they have still have minimum credit score requirements and typically require a full application package from the borrower(s) for review.
Fees Associated With These Loans
Of course, a borrower should expect that the higher the risk associated with making a commercial bridge loan, the higher the cost of money will be. Hard money loans due in one year can have interest rates ranging between 10-18%, with loan fees of 3-6%.
Yes, commercial bridge loans are not cheap money. But there are definitely situations where obtaining a bridge loan makes sense.
In the right situation and with a proper exit strategy, a commercial bridge loan is a great financing option that makes it possible for a borrower to purchase the commercial real estate property they would otherwise not be able to own.