Bridge loans are types of mortgages that provide borrowers with short-term financing that can be used to buy or renovate a commercial property until it is repositioned, refinanced, or sold. The borrower will repay the bridge loan with the revenue from the refinancing or sale.

Terms of Short-Term Bridge Loans

Most bridge loans are designed to be short-term, typically lasting three years or less. As the name suggests, these loans are meant to “bridge” the gap between one source of financing and another.

Interest rates on bridge loans are usually higher than on conventional business loans. Most of the time, the rates are 50 to 200 basis points higher than what you might expect from a regular bank loan. The exact rate depends on the details of the deal.

How Can Commercial Real Estate Investors Make Use of Bridge Loans?

Some of the most common reasons for using bridge loans include the following:

Capital Needs to be Accessed Quickly

Bridge loans can help borrowers save time and money by allowing them to get things moving forward quicker than if they were to try and get a conventional bridge loan.

In The Case Of An Unconventional Deal

Bridge loans are incredibly flexible, so they’re perfect for unorthodox deals. This includes buying and renovating a sober living or senior center since traditional lenders scrutinize these properties closely.

Your Value-Add Strategy Predicts High Cash Flows

Investing in Class B or C properties and improving them to Class A or B is a frequent real estate investment technique. Bridge lenders are more comfortable taking the risk of betting on future cash flows than conventional lenders who favor stabilized assets.

You Have a Low Credit Score

Short-term bridge loans are great for sponsors with poor credit. A bank or agency lender might not approve a loan due to poor credit, but a bridge lender is usually more ready to work with someone regardless of their credit score or background.

You Require a Non-Recourse Loan

Recourse loans require a borrower to put up enough collateral to repay the lender. Non-recourse loans minimize borrowers’ responsibility to the funded business property. Most borrowers prefer non-recourse loans because they don’t have to worry about collateralizing the loan with anything unrelated to the transaction.

Are Bridge Loans Right For You?

Before deciding to take a bridge loan, any commercial real estate investor should carefully consider the advantages and disadvantages of bridge loans. Bridge loans are an excellent source of cash in some circumstances, but they have risks, such as higher interest rates. Always investigate all funding options before deciding. Contact Brave Capital Funding today to explore the many commercial real estate financing options available.