Commercial Financing With Bridge Loan - The Basics
Conventional commercial financing isn"t particularly easy to come by if the borrower has a poor credit history or if the property is not stabilized
. Also it is time consuming to secure commercial financing when the borrower is short on time to close a transaction. However, if you see a real estate opportunity that is certain to pay dividends, do know that you have an option when it comes to looking for financing, and this comes in the form of commercial financing with bridge loans.
What is a Bridge Loan?
A bridge loan, as the name implies, serves as a bridge to a more permanent financing option by allowing the borrower to build/repair his or her credit history or stabilizes the property. However, an inappropriate credit history is not the only reason that a borrower might seek a bridge loan, as there are numerous instances when commercial financing with bridge loans is sought when time is of the essence.
Bridge lenders, who are generally private lenders, essentially consider the value of the property and its viability, as opposed to going through the borrower"s financial history. Therefore, what basically secures a bridge loan is the value of the property. General repayment periods for bridge loans are in between six and 18 months, although this can also be extended to around three to five years in some cases. The funds acquired through a bridge loan are also commonly referred to as "hard money or "private money" loan.
What You Should Expect:
When you seek a bridge loan, expect the lenders to inquire about the reason for applying for bridge loan and exit strategy as opposed to conventional financing. As mentioned above, your reason could either be expedited clearance of funds, or to build a good credit history. Bridge financing providers would also evaluate the investment thoroughly, and this would include aspects like the collateral, cash flow, solid repayment options, the location and condition of the property you wish to invest in, etc.
While you can comfortably expect to get 60% to 75% financing for your income producing multiple tenant commercial real estate investment through a bridge loan and 50% for vacant property, but this figure could also go up to 80% depending on type of the property and cash flow it generates. However, lenders would require more equity for special purpose or single purpose properties such as gas stations, assisted living properties or Auto dealership properties. This loan to value is essentially in place so that the lender can be protected in case the borrower defaults on the given loan.
The minimum loan amount for commercial bridge loans and lender fees varies for each lender. Apart from investing in commercial real estate, these funds can also be used toward foreclosure or bankruptcy bail out, partner buyouts, rehabilitating existing properties, for discounted mortgage buybacks, etc.
All types of commercial properties would be financed through bridge loans however; income producing apartment/multi-family buildings, shopping centers/retail strips, office buildings and industrial buildings are the favorite types. There are lenders and capital providers that specialize in special or single use type properties such as assisted living, Mobile Home Park, Adult day care, car wash and so on.
by: Shawn Shayestehfar
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