When an investor has interest in a particular property but there happens to be a gap between when financing will become available and the closing date they do not have to pass up the opportunity. Instead, it is possible to secure a temporary form of financing called a "bridge loan". Anyone who is curious what is a commercial bridge loan will find the following information to be helpful.
This short-term lending arrangement is usually taken out for anywhere from two weeks to at most three years and acts as a monetary "bridge" until the finalization of the long-term financing, which will ultimately be used to pay back this initial amount borrowed once obtained. They typically have higher interest rates, shorter amortization periods, and lower loan-to-value ratio, but they can usually be arranged in a timely manner with minimal documentation needed.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
Banks deal with lower risk applicants and require substantially more in the way of documentation before they will approve any borrowing. Those who are in search of bridge financing will normally turn to individual lenders, private companies, or investment pools.
The highest loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One example of where this type of borrowing serves its purpose is during the time when a developer needs to await the approval of a permit. If all goes as planned and the project goes ahead, the next level of financing will then be drawn on to cover the cost of the bridge loan. It can also be used as equity on properties currently owned which close after others which the investors wishes to purchase, the sale of the former paying off financing for the latter.
During changes in management of a business, it can also be helpful to acquire this sort of financing as it provides funding until a new investor is found. The purchase of auctioned-off properties, or quick-buy discount investments, is also enabled through bridging options that can make things happen more quickly than most traditional forms of lending.
This short-term lending arrangement is usually taken out for anywhere from two weeks to at most three years and acts as a monetary "bridge" until the finalization of the long-term financing, which will ultimately be used to pay back this initial amount borrowed once obtained. They typically have higher interest rates, shorter amortization periods, and lower loan-to-value ratio, but they can usually be arranged in a timely manner with minimal documentation needed.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
Banks deal with lower risk applicants and require substantially more in the way of documentation before they will approve any borrowing. Those who are in search of bridge financing will normally turn to individual lenders, private companies, or investment pools.
The highest loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One example of where this type of borrowing serves its purpose is during the time when a developer needs to await the approval of a permit. If all goes as planned and the project goes ahead, the next level of financing will then be drawn on to cover the cost of the bridge loan. It can also be used as equity on properties currently owned which close after others which the investors wishes to purchase, the sale of the former paying off financing for the latter.
During changes in management of a business, it can also be helpful to acquire this sort of financing as it provides funding until a new investor is found. The purchase of auctioned-off properties, or quick-buy discount investments, is also enabled through bridging options that can make things happen more quickly than most traditional forms of lending.
About the Author:
Tom G. Honeycutt is a full-time real estate entrepreneur in Atlanta, GA. Tom helps readers by providing practical and useful knowledge to better understand lending choices. If you are looking Commercial Rehab Loan Companies | Atlanta, GA He suggests you check out the website iFund International.
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