How to Use Commercial Bridge Loans

How to Use Commercial Bridge Loans

Commercial bridge loans are a means of short-term financing, a flexible interim funding approach that provides a financial “bridge” until the business becomes qualified to secure more permanent financing.

How to Use Commercial Bridge Loans

Commercial bridge loans are also called commercial real estate loans and are used for buying commercial properties in situations when permanent funding is not available. In addition to purchasing commercial real estate, they can be used to complete significant property renovations or upgrades. These loans can be used for commercial, residential, and industrial purposes; to purchase or refinance office buildings, multifamily properties, apartment complexes, retail properties, hotels, and raw land that can be developed for commercial uses.

Bridge loans may be sought when the borrower’s credit score needs to be improved, or when the borrower can’t wait for permanent financing.

How Do Commercial Bridge Loans Work?

Bridge loans are optimally secured when the property in question is purchased at a sizeable discount, either due to poor condition or poor management. Before applying for a bridge loan, it is critical to make reasonable estimates for what it will cost to acquire the property and bring it up to standard.

The chosen lender will evaluate the property and your renovation plans, evaluate the real estate market, and the economic environment before deciding to approve or reject the project. These same factors will determine the cost of the loan and the loan period, based on the risk involved. Lenders will provide funding based on loan-to-cost or after-repair-value, so they are anticipating improved property value when approving a customized financing package.

Commercial bridge loans are generally provided in a minimum amount of $1 million, but there is typically no maximum. Turnaround time takes 2.5 to 5 weeks. Bridge loans typically have payment terms of six months to three years, at which point permanent financing must be secured.

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