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.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
The major financial institutions do not typically provide lending services for these high risk investors with limited documentation, and as a rule one will not find these short-term loans at a bank. Sources are mainly from private companies, investment pools, or individuals.
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.
One example of where this type of borrowing serves its purpose is during the time when a developer needs to await the approval of a permit. If all goes as planned and the project goes ahead, the next level of financing will then be drawn on to cover the cost of the bridge loan. It can also be used as equity on properties currently owned which close after others which the investors wishes to purchase, the sale of the former paying off financing for the latter.
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.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
The major financial institutions do not typically provide lending services for these high risk investors with limited documentation, and as a rule one will not find these short-term loans at a bank. Sources are mainly from private companies, investment pools, or individuals.
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.
One example of where this type of borrowing serves its purpose is during the time when a developer needs to await the approval of a permit. If all goes as planned and the project goes ahead, the next level of financing will then be drawn on to cover the cost of the bridge loan. It can also be used as equity on properties currently owned which close after others which the investors wishes to purchase, the sale of the former paying off financing for the latter.
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 Mortgage Lender Loans | Atlanta, GA He suggests you check out the website iFund International.
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