In the past, prospective commercial real estate investors had few options when it came to securing short-term, transitional loans for their properties.
Thankfully, private lenders and lending institutions have come up with some creative solutions to help investors, one of which is the commercial bridge loan. This loan provides more options for those in need of a temporary loan to help them prepare for more permanent financing.
Here are 3 reasons why real estate investors see bridge lending as a viable option to help them achieve their long-term financial goals.
1. Loan Structure
A bridge loan represents a slight twist on a conventional commercial mortgage in that the purpose is to provide short-term financing to investors to “bridge the gap” until long-term or permanent financing can be secured.
Bridge loans are often 1 to 3 years in length, and the expectation is that the borrower will use that period to put themselves or their property in a better position to qualify for a traditional loan.
The loan amounts for bridge loans vary drastically from lender to lender. As an example, Commercial Direct, a division of Silver Hill Funding, LLC, offers commercial bridge loans of $1 million to $5 million.
2. Qualifying on Collateral
Depending on the lender, the qualification process for a bridge loan can be quite different from that of a more traditional mortgage.
That’s because the approval process centers more on the borrower’s collateral than their credit score. This can make it easier for some investors to secure bridge loans, thought it should be noted that bridge loans typically include higher interest rates as a result.
3. A Solution for Refinancing
Many commercial real estate investors are using bridge loans as a means to refinance when they are in a financial pinch, which is yet another contributor to their rise in popularity.
Consider the investor who is unable to refinance because their multifamily property has a vacancy issue. They could turn secure a bridge loan to and use the funds to improve the building and re-tenant the property. If they are able to accomplish those tasks quickly and reposition the property in the eyes of traditional lenders, they can then take that bridge loan out with a long-term finance solution.
There's no question that commercial mortgage bridge loans have disrupted the traditional commercial lending landscape, and will likely continue to do so as savvy investors look for ways to boost their portfolios. If you think a commercial bridge loan makes sense for your situation, visit InvestmentProperty.Loans and apply today!