It sometimes happens that an investor wants to purchase a piece of real estate with a closing date before financing arrangements can be arranged. Fortunately there is a temporary solution to this dilemma; bridge financing. Find out what is a commercial bridge loan and the advantages it has to offer those who don't want to miss out on opportunities to purchase certain properties.
This short-term lending arrangement is usually taken out for anywhere from two weeks to at most three years and acts as a monetary "bridge" until the finalization of the long-term financing, which will ultimately be used to pay back this initial amount borrowed once obtained. They typically have higher interest rates, shorter amortization periods, and lower loan-to-value ratio, but they can usually be arranged in a timely manner with minimal documentation needed.
The primary use of these types of loans is to allow commercial investors the quick purchase of properties of interest when time or circumstances do not allow for traditional methods of financing. Clients who apply for such financing are considered to be a higher risk, which accounts for the higher interest rates and costs.
The higher interest rates, higher risk, and marginal documentation requirements does not fit the lending profile of most financial institutions, which is why banks do not offer them. The source of this financing is usually from investment pools, individuals, or private companies.
The highest commercial loan-to-value ratio available based on the property's appraisal value is 65 percent. It may either be closed financing which is available for a designated period of time, or open, which means that there is no specific pay off date established from the start. If the investor wishes to apply for additional bridging later on, a lower interest rate should be given as the risk is also lower.
An example of one application of bridging financing is to cover property purchase or improvement costs while the developer waits for a required permit to be approved. Once the project is given the green light and a standard form of financing is secured, this will be used to pay back the first one. It can also be used to acquire equity for a property one currently owns for the purpose of purchasing additional real estate, then using the sale of the former to repay the financing.
When a business is in the process of acquiring new management, taking out such a loan can also be helpful in maintaining the company's finances until new investors take over. It also makes the purchase of discounted or properties which are being auctioned off possible since time is of the essence and it may not be easy to quickly obtain traditional financing.
This short-term lending arrangement is usually taken out for anywhere from two weeks to at most three years and acts as a monetary "bridge" until the finalization of the long-term financing, which will ultimately be used to pay back this initial amount borrowed once obtained. They typically have higher interest rates, shorter amortization periods, and lower loan-to-value ratio, but they can usually be arranged in a timely manner with minimal documentation needed.
The primary use of these types of loans is to allow commercial investors the quick purchase of properties of interest when time or circumstances do not allow for traditional methods of financing. Clients who apply for such financing are considered to be a higher risk, which accounts for the higher interest rates and costs.
The higher interest rates, higher risk, and marginal documentation requirements does not fit the lending profile of most financial institutions, which is why banks do not offer them. The source of this financing is usually from investment pools, individuals, or private companies.
The highest commercial loan-to-value ratio available based on the property's appraisal value is 65 percent. It may either be closed financing which is available for a designated period of time, or open, which means that there is no specific pay off date established from the start. If the investor wishes to apply for additional bridging later on, a lower interest rate should be given as the risk is also lower.
An example of one application of bridging financing is to cover property purchase or improvement costs while the developer waits for a required permit to be approved. Once the project is given the green light and a standard form of financing is secured, this will be used to pay back the first one. It can also be used to acquire equity for a property one currently owns for the purpose of purchasing additional real estate, then using the sale of the former to repay the financing.
When a business is in the process of acquiring new management, taking out such a loan can also be helpful in maintaining the company's finances until new investors take over. It also makes the purchase of discounted or properties which are being auctioned off possible since time is of the essence and it may not be easy to quickly obtain traditional financing.
About the Author:
Tom G. Honeycutt is a full-time real estate entrepreneur in Atlanta, GA. Tom helps readers by providing practical and useful knowledge to better understand lending choices. If you are looking Commercial Property Lender Loans | Atlanta, GA He suggests you check out the website iFund International.
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