Sometimes there is a gap between the closing date of a property and the date that long-term financing will be accessible. In such cases, the investor need not pass on these real estate purchases, because it is possible to take out a "bridge loan". Those who are wondering what is a commercial bridge loan, will find this guide to be of assistance.
Bridging is intended to cover the interim period between when the financing is initially required and when more permanent borrowing can be obtained. This can be as short as two weeks or as long as three years in some cases. When the long-term financing is secured, it will be used to pay back the bridge loan. Bridge financing is characterized by a shorter amortization period, higher interest rate, lower loan-to-value ratio, and less documentation is required for approval.
The most common purpose for these loans is to enable timely investments that would otherwise not be possible due to timing or circumstances that are not in favor of obtaining traditional financing. The higher risk status of these clients is the main reason why the interest rate is higher.
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 loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One scenario in which this form of lending is particularly useful is when the investor needs to wait for a permit to be approved. Once the permit is granted, the lender will be paid back from the long-term borrowing plan of the investor. Someone who wishes to secure equity on a property they currently own to purchase another can also benefit from bridging, and then pay it off with the sale of the property.
Businesses that are in the process of changing management on some level may also find it useful to obtain bridge financing to stay afloat while in search of new investors. It can also be used for the quick purchase of a discounted investment or auctioned-off property without all the red tape associated with traditional means.
Bridging is intended to cover the interim period between when the financing is initially required and when more permanent borrowing can be obtained. This can be as short as two weeks or as long as three years in some cases. When the long-term financing is secured, it will be used to pay back the bridge loan. Bridge financing is characterized by a shorter amortization period, higher interest rate, lower loan-to-value ratio, and less documentation is required for approval.
The most common purpose for these loans is to enable timely investments that would otherwise not be possible due to timing or circumstances that are not in favor of obtaining traditional financing. The higher risk status of these clients is the main reason why the interest rate is higher.
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 loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One scenario in which this form of lending is particularly useful is when the investor needs to wait for a permit to be approved. Once the permit is granted, the lender will be paid back from the long-term borrowing plan of the investor. Someone who wishes to secure equity on a property they currently own to purchase another can also benefit from bridging, and then pay it off with the sale of the property.
Businesses that are in the process of changing management on some level may also find it useful to obtain bridge financing to stay afloat while in search of new investors. It can also be used for the quick purchase of a discounted investment or auctioned-off property without all the red tape associated with traditional means.
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 Mortgage Financing | Atlanta, GA He suggests you check out the website iFund International.
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