This type of loan is meant to be a short-term fix to help you gain the money you need to buy or fix up your next commercial property. It lets you evade liquidity issues and gives you quick access to the money you need for repairs and purchases. You take out the timely bridge loan and then pay it back with permanent financing that you receive later.
Because bridge loans are a short-term solution, they have a higher risk level and as such have higher rates of interest than a traditional commercial mortgage. They tend to run from six months to a year, with additional time sometimes allowed for extensions, up to another year. Extensions range from a half point to two points depending on the case.
These commercial loans are repaid after you gain new tenants from completing improvements or after you obtain a bank loan for the mortgage. Also, because their terms are short, you don’t usually have to worry about penalties if you pay them back in full early.
When Is a Bridge Loan Helpful?
Bridge loans are an excellent choice in a variety of situations. For instance, if you can only buy a property within a limited time-period, you might want to jump in with a bridge loan to cover the cost while you wait for a bank loan to come in. Simply repay it later with funds from your commercial loan. You can also use a bridge loan if you have a balloon payment due on an existing loan. Make that payment with this quick loan while you await permanent funding.
These loans are a fast and short real estate solution that you can use while you wait to finish refinancing, improving or purchasing a commercial property. For example, if you know your apartment complex will be worth double the price after you complete renovations for less than half the cost, it may be a good idea to finance your improvements with a bridge loan, then pay it back when you refinance at the higher value.
If you’re looking for a quick loan to help you through a real estate purchase or renovation, bridge loans can be a good answer to your problem. Now that you know what they are and when to use them, keep them in mind for when those situations arise.
