The Ins and Outs of Commercial Bridge Loans
When investing in commercial real estate, there are many factors to consider. Location, purpose, rehabilitation and timing are just some of the decisions that investors have to make daily when looking for a great commercial property.
When looking at a hot property, you may need to act quickly, which is where hard money lenders can be a great help. When traditional loans require too much paperwork, too long of a turnaround time and too much information on the borrower, hard money lenders can offer a private bridge loan. Here are some of the benefits of bridge loans, and how they work.
They can be approved quickly. With traditional lenders, more emphasis is on the borrower, not the property. This can mean having to dig up several financial documents and wait several days or months for loan approval. With a commercial bridge loan, hard money lenders can give you a preliminary decision within a few minutes, and even give you the funding within just a few days or a week. They base their decision off of the property value of the investment that is being purchased, so much less paperwork is needed.
The interest rates are not much higher. One common misconception is that bridge loans have very high interest rates. The reality is that most interest rates are only 3 to 5 percent higher than traditional loans, and most lenders are willing to work with investors to figure out repayment details. They want you to succeed, and when the investor does well, the lender does well.
The repayment period is shorter, so the loan is not hanging over your head. hen you acquire a commercial property loan from a hard money lender, the repayment period is often six months to a year, as opposed to 15 to 30-year traditional repayment periods. With this short-term loan, you can acquire the funds needed to buy the property, and start making profits right away without a mortgage payment eating up all of the rental income.
They can “bridge” the gap between purchasing a debilitated property and renovations. f a property is more run down, it might benefit from renovations to update the building, so you can either rent it out or sell it. A bridge loan works by giving the borrower enough funds to cover the purchase of the property, plus renovation costs. Often, a hard money lender will lend a borrower up to 80% of the decided value after the property has been updated. The rest of the funding must come from investors. Once you secure the loan, you purchase the property, use the funding to update it, and use the profit from a sale or rental to pay off the short-term loan.