Commercial Bridge Loans
Commercial bridge loans are growing in popularity – and for good reason. There are several benefits of this type of loan:
1. Make it simple for borrowers to finance for a short period of time. From there, they can refinance with the same lender or with another.
2. Put borrowers in position to decrease the amount of time between having an offer accepted and closing on a commercial property.
How do Commercial Bridge Loans work?
As a commercial borrower, you may need a loan in order to finance a property for a short period of time. With a bridge loan this is very simple. It can be used to act as interim financing before a permanent loan is settled on.
Generally speaking, commercial bridge loans can be used on the following types of properties:
- Apartments
- Retail
- Industrial
- Office space
- Mixed use
In most cases, a bridge loan is offered for a term ranging from 12 to 24 months. Although, borrowers can opt for terms as short as two weeks. While bridge loans are often times used because of a shorter term, this type of financing is perfect when closing quickly is a necessity.
Although interest rates can and will change with the market, 11 to 15 percent is typical. For commercial properties, the loan to value (LTV) ratio does not usually exceed 65 percent. With such a high interest rate, it is important to use a bridge loan for the shortest period of time possible and then move onto a permanent financing option with more favorable terms.
Quickly closing on commercial real estate is essential to most buyers. With the help of a bridge loan, it is easy to secure short term financing until permanent financing can be put into place. In most cases, a bridge loan is paid back when the property is refinanced or sold.
Bridge Loan Fees
Just like any type of loan, expect to pay fees when closing on a bridge loan. These include: administration fee, appraisal fee, escrow fee, title policy fee, notary fee, recording fee, and wire/courier fee.
The bottom line: a bridge loan is used as short term financing until a more permanent solution is in place.
