The purpose of investing is to find great value and turn that value into a profit. The better the value, the better your ROI, and in some cases that means that, as a commercial property investor, there are occasionally going to be buys that you simply cannot pass up.
But in order to purchase that property, you need to have a commercial loan, and in some cases the time it takes you to receive a commercial loan may be greater than the time you have to purchase the property. In that case, you may need a commercial bridge loan.
What is a Commercial Bridge Loan?
Bridge loans are a type of fast commercial loan that some borrowers need when their property transaction will take too long to close and they need to get access to the property faster. Investors use commercial bridge loans when something comes up that prevents a quicker close to a property – for example, a property that has been purchased after foreclosure.
These loans tend to be of higher interest rate (since technically the initial loan waiting in approval hasn’t closed yet), but they provide borrowers with the potential to purchase a property quickly and then pay back the higher interest bridge loan with their lower interest commercial mortgage loan.
What to Look for in Commercial Bridge Loan Lenders?
For lenders, a bridge loan represents a significant risk. Bridge loans mean there is no guarantee that the property is going to be closed in your favor, and that lenders are offering you a significant loan that only lasts for the duration of the toughest time for most buyers financially (when the property changes ownership). Because of these risks, commercial bridge loan lenders often have higher interest rates and more fees.
So when shopping around for a bridge loan lender, it’s important to compare and contrast the following:
- Fees – First and foremost, make sure you compare and contrast fees across multiple companies. It’s very important you do not simply jump into the first loan you find. Fees affect your ability to profit on your property, and the more a lender charges the more problematic it will be for your own finances.
- Prepayment Penalties – Except in rare cases, you should also stay away from any commercial bridge loan lenders that charge prepayment penalties. Remember, with bridge loans, your hope is that you pay off the loan with the new commercial mortgage that is presumably at a lower rate. Prepayment penalties are often substantial, and may make it difficult to profit off your property.
- Loan Term Length – Always overestimate your loan term length. If your bridge loan becomes due and you’re still not done closing on the commercial loan, you could be in a lot of trouble.
You should also make sure that you’re structuring a loan that is perfect for your repayment expectations, and that you’re working with a commercial bridge loan lender that is willing to structure a loan in the way that you need.
Keep in mind that bridge loans, like all commercial loans, can be a tough arena to navigate. So do not be afraid to contact experts to help you through the process. At CRE Lender, we’ve helped dozens of investors receive the perfect bridge loans for their needs. We’re happy to help you along each step of the way, and as the premier provider of commercial lending solutions, we’re confident we can match you to lenders that are guaranteed to meet your needs.
Sign up with CRE Lender today to find out more about the lending options available.
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