Aug 24
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What Are Commercial Real Estate Bridge Loans And How Do They Work?
Commercial real estate bridge loans – they’re quick, temporary financial lifelines within the commercial real estate world which empower you to fund your deals and get you from point A to B when time is of the essence and you absolutely positively need to close your loan quickly without the mounds of documentation, stringent requirements and red tape of conventional lenders. Typically used when there’s a gap between buying a property and securing long-term financing, these loans can be your lifesaver for short-term needs.
Unlike traditional commercial real estate loans that are often more rigid with stringent requirements, bridge loans are relatively flexible. You usually get them for their speed and ease when you’d rather not jump through hoops to get the cash you need. They are particularly handy when you’re waiting for your current property to sell or your long-term loan to process, but you need funds right the heck now.
Let’s break down some of the key characteristics. Loan size can vary widely depending on the deal – we’re talking anywhere from a few hundred thousand dollars to millions. Lien position is another critical element. Generally, commercial real estate bridge lenders take first lien position, meaning they’re the primary loan on the property, which gives lenders more security if you default.
Loan-to-value, or LTV, is a ratio that compares the loan amount to the value of the property. For commercial bridge loans, an LTV around 60-75% is common. It balances the risk for lenders while providing enough funds for you as the Principal Borrower to maneuver swiftly as needed. The goal here is to have enough financial elbow room without taking on excessive risk.
Commercial Real Estate Bridge Loan Terms, Rates and Fees
When it comes to bridge loans, terms generally run between 6 to 36 months. The idea is to provide short-term financing that you’re expected to replace with more permanent funding, like a commercial mortgage refinance or property sale, pretty quickly.
Closing time-frames are another big plus. With bridge loans, you’re not jumping through nearly as many hoops as you would with a conventional loan. It means faster approvals and a smoother path to closing, which can be a lifesaver when you’re in a time crunch.
Interest rates for bridge loans are typically higher than those for conventional long-term loans; there’s a pretty wide range varying from about 7% to around 15% since you’re looking at rates that reflect the loan’s short term nature and relatively higher risk. Commercial real estate bridge lenders charge these rates because they’re taking on a considerably more uncertainty than conventional lenders take on for longer-term loans on stabilized properties.
Since the vast majority of commercial real estate bridge lenders charge upfront fees, that’s a reality of life for which you should prepare and perhaps even brace yourself for. You might encounter application fees, appraisal fees, and possibly even origination fees. While these can add to your immediate costs, they can be necessary for getting that quick access to funds.
Here at Commercial Real Estate Loans USA, for commercial real estate bridge loans between $2 and $15 million collateralized by sufficiently cash flowing properties nationwide, interest rates are currently 6.99-8.99%. Plus, you can close your loan within 10-20 days and pay no upfront fees @ all.
Advantages and Practical Considerations
Speed is the name of the game with commercial real estate bridge loans. Traditional commercial mortgage lenders can and do drag their feet, taking months to process. On the other hand, bridge loans across the board are designed for rapid execution. In some cases, you can secure funding within a week, providing the liquidity you need without getting bogged down by red tape.
Lending locations and property types can be quite diverse. These loans can be applied to a range of commercial properties, including office buildings, retail spaces, and more. It offers a degree of flexibility that you won’t find with more specialized financing options.
Practical considerations are equally important. When using bridge loans, always assess the lender’s requirements and your ability to meet them promptly. Each lender might have different standards for credit scores, net worth, and property conditions, so make sure you’re clear on their specific lending parameters before you dive in.
A well-defined exit strategy is crucial. Lenders will want to know your plan for paying off the loan promptly. This could be through selling the property, refinancing with a long-term loan, or using other funds. Without a solid exit strategy, your loan approval process will likely hit some roadblocks.
Real-life scenarios? Think about businesses that need to relocate quickly, property investors snapping up a great deal, or owners looking to renovate while waiting for long-term financing. These loans fit perfectly into those kinds of plans, offering tactical financial solutions while keeping your broader investment strategy intact.
In short, when you require quick, reliable, flexible funding with certainty of closing, commercial real estate bridge loans offer you a viable solution that eliminates the red tape, stacks of loan documents and seemingly endless hoop jumping required by conventional lenders. Just make sure you have a clear, well thought-out executable exit strategy to avoid any potential pitfalls. Finally, as always…
Any questions or concerns? Feel free to contact us just about anytime. We’re here for you and we are rooting for your success. Thanks for checking us out and see you @ the Virtual Closing Table!