Bridge Loans are stepping stones to Permanent Financing
Bridge loans are a temporary solution designed to bridge the gap between a less than optimal situation until the more desirable permanent financing becomes available. They can be effective tools to bridge the gap to permanent financing.
When is a bridge loan used?
A bridge loan may be used when a borrower’s credit situation is not optimal and is in a less-than-perfect transition phase.
A bridge loan is a tool that can be used by a borrower to capture and exploit market opportunity in a timely manner. Investors are finding that many real estate and business opportunities exist in today’s market. The challenge is finding the capital to take advantage of these opportunities. Very often, speed is required. Bridge loans can provide investors with a fast turnaround on a large amount of capital to pursue profitable investments.
Typical bridge loan use
A buy-investor looking at a property for the potential increase in value may find that it will generate little or no cash flow during the renovation or leasing phases. The capital available from a commercial bridge loan can be used for the acquisition and value-add execution part of the plan.
Bridge loans are suitable across a variety of property types including apartments, retail, mixed-use and residential and industrial buildings.
Finally, although the market has recently improved, there can be difficulties which an investor may face when seeking the more traditional permanent financing. These include increased banking regulation and oversight and the increased scrutiny of government sponsored agencies. Bridge loans can be used to mitigate the problems associated with these issues until a more permanent solution becomes available.