Commercial real estate is a fast-paced industry. Opportunities arise, and if you don’t seize them when the time is right, you lose out. Bridge loans help CRE investors take advantage of new opportunities that come along by providing the short-term funding needed to take the plunge. Terms for these loans tend to hover in the six-month to one-year range, allowing plenty of time to secure long-term financing. As the term implies, they bridge the gap from the present to future funding.
Why would a CRE investor need a bridge loan?
Any time you need money quick to make a timely purchase, a loan like this can be useful. If your real estate partner wants to pursue another career path, you can use a bridge loan to buy him or her out, securing the full ownership of your business for yourself. A new property could hit the market, generating a lot of competitive buzz, and the person who can secure the money to buy it first wins. Upgrades to an existing property that are projected to bring a significant increase in revenue can be funded by bridge loans. Even if you just need money fast to pay a balloon payment of another loan, this type of loan can help.
Advantages of Bridge Loans
One advantage that a bridge loan offers is its fast approval rate. Traditional real estate financing takes a longer time to approve than the rush of the market generally allows. Shorter terms and higher interest rates mean lower risks for lenders, so the requirements for a bridge loan aren’t as rigorous. Banks can approve borrowers faster for loans that cover the gap between need and long-term funding.
Another advantage that bridge loans have for borrowers is the flexibility of the loan specifications. They are in a better position to negotiate the terms of the loan with lenders. As it is presumed they intend to seek long-term financing that, in addition to the collateral, lowers lender risk, the payment schedule is often more fluid. These loans also rarely have prepayment penalties. These temporary loans are some of the easiest lending options to tailor to your unique needs.
CRE investors can benefit greatly from bridge loans. They not only offer fast financing for time-sensitive investments but also flexibility in term negotiation and management. Short-term funding allows investors to take new real estate risks that can advance their careers or help them compete in their local real estate market. These loans empower investors with the freedom they need to pursue the next opportunity on the horizon.