What Is a Commercial Bridge Loan and How To Get One

The commercial bridge loan act as interim financing and is used to quickly close on a commercial real estate property. These types of loans are also used to take advantage of an opportunity that is only available for the short-term or to save real estate from foreclosure. Bridge loans tend to be more expensive than the usual commercial financing options. This is because commercial loans are riskier than conventional loans.The term, “commercial bridge loan” generally applies to the use of the funds instead of the source of the funding or the guidelines that are imposed during the transaction. In a sense, all commercial loans can be bridge loans. However, normally, the term is associated with programs that fall into the unconventional realm of financing. A good example is when a borrower lacks enough cash equity in a business property; he or she could seek a commercial loan with a 14 percent interest rate and from 3 to 5 points. However, if he or she could make as much as a 30 percent down payment, the borrower might qualify for a conventional mini-perm loan from a bank at up to 3 percent over prime and one point.Interest rates for commercial bridge loans typically run from 12-15 percent. With terms of 12 months, from two to four points may be levied. The LTV (loan to value) ratios tend not to be greater than 65 percent for properties that have been classified as commercial.A first charge commercial bridge loan is typically available at a higher loan-to-value ration than a second charge loan. This is because of the lower risk level involved. At times, commercial bridge loans are closed, meaning that they are available only for a timeframe that has been predetermined. Alternately, they can be open, which means that a fixed payoff date has not been determined. In the latter case, a required payoff is usually set after a certain length of time, however.It is not uncommon for a property developer to obtain a loan while approval is pending for a required building permit. They can also be used by an already-existing business to enable that business to run smoothly during a transitional period between CEOs or other company officers. Additionally, they can be used to sustain a company from running out of money between successive private equity financing operations and to carry businesses that are in trouble while their owner(s) seek larger investors. Finally, the commercial bridge loan can be used as debt financing to maintain the business through the period right before an acquisition or initial public offering.Ideally, the financial institution that offers a commercial bridge loan will offer as much as 100 percent financing and additional collateral without requiring upfront fees. Borrowers should seek the lender who does not impose outrageous prepayment penalties and who has a full range of loan terms. There should be options for flexible extensions and the ability to make speedy decisions. Expect higher rates overall for the commercial bridge loan, but remember that they do have their advantages.

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