For many commercial real estate investors, securing financing is the biggest hurdle when it comes to purchasing a property. You may have an attractive property in mind and a solid long-term investment plan in place, but if you can't come up with funding in time, someone else is going to capitalize.
Or perhaps you need to make improvements to your commercial property before you can secure the lowest possible interest rate. This can include actual building improvements or tenant additions.
If you believe you can complete the necessary improvements in a relatively short amount of time, it could make sense to secure a short term loan that you can eventually take out with a lower-rate long-term solution.
These types of lending products are commonly referred to as bridge loans. If you’re new to bridge lending, take a moment to read through some common questions surrounding these types of loans and our corresponding answers.
What Is a Commercial Bridge Loan?
A commercial bridge loan is a flexible loan arrangement that is designed to offer short-term financing until permanent financing or an exit strategy can be arranged.
How Do Commercial Bridge Loans Work?
Commercial bridges are supposed to “bridge the gap” between a purchase and the arrangement of long-term financing. These short-term loans typically have terms of between a few months and a year, but they can extend for up to three years in some cases.
You may want to explore a commercial bridge loan if you are:
● Snapping up a new property before a competitor gets it
● Financing for renovations or rehabilitation to an existing property
● If your credit score is less than optimal
How Do I Qualify for a Commercial Bridge Loan?
Typically, a bridge loan is capped at 70% to 80% of the value of the property to limit the risk for lenders. Some lenders have additional standards that must be met before they will move forward with a bridge loan, such as the condition of the commercial real estate, its location, or if it has any liens against it. If an applicant has any major legal issues in his or her history, foreclosures, garnishments, or bankruptcies, they may also be a factor when it comes to qualifying.
Where Can I Get a Commercial Bridge Loan?
Commercial bridge loans can be sought from a variety of different sources, including conventional banks, credit unions, peer-to-peer lending platforms, and private commercial finance companies.
Finding a lender that specializes in bridge loans or at least has proven experience is a plus, as is trying to get your bridge loan and permanent financing from the same lender. During the process, pay attention to factors such as origination fees and prepayment penalties, as these can add to the final total.
Interested in learning more about commercial bridge loans?
If you like the idea of a commercial bridge loan and want to know if you qualify, head over to InvestmentProperty.Loans and apply now!