Bridge loans are short-term loans used for immediate financial needs for commercial properties. Because of their flexibility, these loans are popular among commercial real estate investors, who use them for a variety of reasons.
Bridging the Gap Between Sales and Purchases
Some commercial real estate investors use these loans to act as a bridge between selling one property and purchasing another. They apply for the loan, use the money they receive to purchase the new property, and then use the money they earn from selling the old property to pay back the loan.
Project Development
Sometimes projects run out of money sooner than expected and are delayed due to financial problems. Bridge loans can help in these situations. Borrowers can apply for an emergency bridge loan to keep working on a construction project and meet deadlines.
Keeping a Business Afloat
In some cases, a bridge loan is used simply to keep a business afloat. The money can be put toward remodeling a property that needs improvement or toward keeping the property out of financial hot water while the owner tries to either sell or find new tenants.
What the Loan Means for Borrowers
Because bridge loans are short-term solutions and are normally expected to be paid back within six months to one year, monthly payments are often much higher than they would be with a traditional long-term loan. However, borrowers who make all payments on time will be rewarded with significant increases in their credit scores. Some borrowers choose to repay the loan once they secure permanent funding, but this option is not recommended unless necessary. If the permanent funding falls through, borrowers are still responsible for paying back the bridge loan in full and will have to do so out of their own pockets.
Where to Get a Bridge Loan
Securing a bridge loan depends on credit and financial statements. If borrowers have healthy financial statements and a solid credit history, a bank will likely provide the funding. Those who don’t have perfect credit, don’t have solid finances in the bank at present, or don’t have a lot of experience in commercial real estate can apply for the loan via a hard money bridge loan lender.
Although borrowers should be sure to weigh the pros and cons of any big financial decisions, bridge loans are typically considered a safe financial investment, which is why so many commercial property investors use them for short-term funding to purchase or renovate properties.
