In the real estate business, sometimes there is a gap between the purchase or renovation of a property and approval of the long-term financing to pay for it. A common method of handling this short-term difficulty that sets you free to take advantage of timely opportunities is a commercial bridge loan. Here is some information on this method of financing to help you determine if it’s the right option for your company.
Commercial Bridge Loan Basics
Because commercial bridge loans serve as interim forms of financing, they have short maturity terms of three months to two years, with the average being six months to a year. The short terms of the loan make interest rates fairly high. The collateral is generally a piece of commercial real estate property, and because the loan is collateralized, your company’s creditworthiness is not usually a significant factor in the loan process. This makes a commercial bridge loan quicker and easier to obtain than a standard mortgage.
Uses for Commercial Bridge Loans
Commercial bridge loans allow you to handle the down payment and monthly payments on desirable properties while you are in the process of securing long-term financing. You might also use a bridge loan to perform extensive renovations on a property you already own to significantly increase its value. You can then refinance the property with a conventional commercial mortgage loan. If you’re moving your business, you can use a commercial bridge loan to make the down payment on your new location and finish paying off the mortgage on your old property.
Advantages of Commercial Bridge Loans
A commercial bridge loan allows you to swiftly take possession of a prime piece of property before your competitors grab it. These loans also have very low prepayment penalties because of their extremely short terms. They enable you to cover a significant portion of the property’s value at the time of purchase.