Exactly what is a bridge loan and what is it best used for? Understand the basics of a bridge loan and when you should consider pursuing one for residential or commercial lending.
As its name suggests, a bridge loan is designed to “bridge the gap” from one asset to the next or until you secure an alternate source of financing for your project, business, real estate investment or home. In commercial lending, they are used to cover business expenses until expected capital becomes available. It is a short-term loan with a payback that usually ranges from 3 to 12 months, though some lenders offer longer repayment options. As an equity-based loan, it is backed by collateral such as real estate or inventory, and is usually considered when “quick cash” is needed.
Bridge loans can be the ideal solution when time is not your friend and immediate capital is required. The funds from a bridge loan are usually available in as short as a few days to as long as a few weeks, giving you the capital you need to move forward on your project or purchase. Many home buyers use this type of loan when they are purchasing a new home before their existing home sells. Today’s real estate market makes this avenue fairly safe and gives you the capital you need to continue making mortgage payments on your first residence or make a down payment on your new home. It avoids having to make an offer on a contingency to sell basis, which can often mean the difference in acceptance or rejection in a seller’s market.
Bridge loans are also useful for commercial lending when developers require funds for renovating a distressed property, when a small business needs quick funds to cover operating costs, or when capital is needed to fulfill seasonal orders. It can provide quick funds in order to start a build-out project or complete a quick buyout in order to gain controlling interest of a business. Many developers use this type of loan to begin work on projects while awaiting the approval process of a more traditional loan.
How to Obtain a Commercial Bridge Loan
While more traditional loans require good credit, the most important aspect of obtaining a bridge loan is collateral such as equity in real property. In order to assess the risk, a lender may also require a plan for repayment or exit strategy. On your part, perform due diligence by determining if there are prepayment penalties and what other costs are involved. In many instances, the need for immediate funds offsets any concerns regarding costs and penalties. It may also be possible to defer your first payment for a certain arranged period.
Always perform due diligence and obtain full disclosure
regarding your transaction costs, penalties and payment plan.
At Level 4 Funding, we are commercial lending experts who pride ourselves on providing the best possible service and believe in giving our customers all the information they need to help them make the best possible loan decision for their project, real estate investment, business or home. We offer bridge loans with rates from 7.99% for up to 3 to 24 months, interest only. Call us for a complimentary consultation.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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