Commercial Bridge Loans

Commercial bridge loans can best be described as a loan that is taken out for a commercial property until you are able to obtain another form of financing. Possibly, the biggest advantage that this type of loan offers is the lack of paperwork and the speed at which they are approved. In fact a commercial bridge loan is typically granted on the merits of the property in question and not on the person who is looking to borrow the money.

Therefore you will generally find that to apply for a commercial bridge loan you will not have to undergo a credit check, and the loan is based around the value of the property which can be used for collateral. You will typically find that a commercial bridge loan can be obtained and then closed within a matter of days, thus making them extremely fast. The main reason you may wish to use this type of loan is because you need to close quickly on a commercial property. This may be due to the fact that the property is in foreclosure or you have been offered a short term opportunity by the vendor.

Another reason why you make choose to take out a commercial bridge loan is because you need a little more time to prove your creditworthiness to a lender. Additionally, it may be because the property requires certain improvements prior to a lender approving a traditional loan. Whatever the reason, a commercial bridge loan can extend you a lifeline if you need to close within a matter of days as opposed to weeks or months.

A prime example of when to use a commercial bridge loan is if you a looking to purchase via a property auction, as most auctions will grant you a total of 28 days within which to make the payment. They are also often used when there is time needed to obtain permits for construction work, or to upgrade a property to a suitable condition, as many lenders will simply decline your request if they believe the property is in a poor condition to meet the income requirements.

It must be said that commercial bridge loans should only ever be used in certain circumstances, as they do have some very big disadvantages. You should always view this type of loan as interim financing, and therefore aim to pay it off as quickly as possible. You will find that a commercial bridge loan will only be offered for the short term, for loans that offer very low loan to value ratios, and they will generally come with a high interest rate.

Commercial bridge loans are usually offered through a private lender, such as a wealthy individual who is looking for a tax break or a small lending company who is willing to take on the risk. You will usually find that 60% will be the maximum loan to value ratio a lender will agree to. As for the interest rate charged, this can be in the region of 10% to 15%, and you may also be charged an additional 1%-5% via an interest rate points system.

You may even be asked for extra collateral or equity participation, which simply makes a commercial bridge loan very expensive to repay. As mentioned, this will be a short term loan and is generally offered for a period of a few weeks up to a maximum of three years. Once you have reached the end term of the loan you will be faced with a balloon type payment which must be repaid immediately.

A balloon payment will generally occur because a commercial bridge loan is not amortized, and therefore even if you have been making significant monthly payments for a short period of time you should find that the principal amount that needs to be repaid will be very close to the original loan amount.

Many business owners turn to commercial bridge loans as a great alternative to financing their business through the sale of assets or equity in order to solve a short term liquidity problem. If you add to this the fact that many banks are turning their back on debtors looking for financing for commercial real estate, this is an extremely viable option for many.

The value of loan offered will typically vary from lender to lender, although many companies seem to have a standard of $1 million minimum and a maximum loan amount of $100 million. Even though you can take a commercial bridge loan for up to 3 years in most cases, when you consider the high interest charges you are definitely better off repaying this loan as quickly as possible.

It is also a great idea to check to see what terms individual lenders offer. An example of why is because a few lenders will provide financing for renovation or construction, but will only disburse the money in stages as the work on the property progresses. If this is not the ideal situation for you then you may be forced to seek another lender.