Bridge Loans for New Commercial Real Estate Investors

If you’re out driving and approach a river, lake, or small ravine, you can’t imagine how you’d make it across without a solid bridge. In the real estate world, sometimes that gap is the money you need to make a real estate purchase. Perhaps a property is available but you just don’t have a source of financing in place, and the property is in danger of slipping away. This is where bridge loans can come in and let you cross those financial waters.

Time is a factor in real estate transactions, and real estate investors may find themselves having to quickly close a deal or make an offer on a foreclosed property. The problem comes for new investors who do not have a long paper trail. Banks look at business records as a way to determine whether you’re a strong bet to repay a loan. Similarly, you may not have a long enough credit history to convince a lender to give you a loan. However, new investors can utilize bridge loans as a way to get a small payment in hand that will let them put down payments on a piece of real estate. Lenders will use the real estate as collateral against the loan. Later, the borrower will pay off the bridge loan when the sale of the property is complete, a traditional loan has refinanced it, or the property is improved or a construction project has been completed, making it profitable.

Lenders do face greater risk from lending a bridge loan because the lender may finance initial real estate developments that could end up not going through, perhaps because the necessary permits could not be secured or other factors. To guard against risk, a bridge loan can be made anywhere from 60 to 85 percent of the property’s appraised value. Also, bridge loans are made for shorter spans of time than traditional loans, lasting usually from six months to a year. This means lenders will have limited time to collect interest on their loans, so as a result interest rates will be higher. Some lenders, however, will allow you to double the amount of time the loan is in effect, though you may have to pay a fee in return.

If you have confidence that your real estate venture will be a profitable success and just need some immediate capital to cross over a financial gap to a real estate purchase, consider getting a bridge loan. Especially if you’re new to the real estate world, you may find bridge loans can be very beneficial in furthering your career and creating a good investment for you.