It sometimes happens that an investor wants to purchase a piece of real estate with a closing date before financing arrangements can be arranged. Fortunately there is a temporary solution to this dilemma; bridge financing. Find out what is a commercial bridge loan and the advantages it has to offer those who don't want to miss out on opportunities to purchase certain properties.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The most common purpose for these loans is to enable timely investments that would otherwise not be possible due to timing or circumstances that are not in favor of obtaining traditional financing. The higher risk status of these clients is the main reason why the interest rate is higher.
Banks deal with lower risk applicants and require substantially more in the way of documentation before they will approve any borrowing. Those who are in search of bridge financing will normally turn to individual lenders, private companies, or investment pools.
The maximum loan-to-value ratio for commercial properties is 65 percent, based on it appraisal value. The loans may be either closed, which only guarantees its availability for a specific time period, or open, without a fixed date by which it must be paid off, at least not for some time. Subsequent bridge financing may be available for a lower interest rate as the risk is less.
An example of one application of bridging financing is to cover property purchase or improvement costs while the developer waits for a required permit to be approved. Once the project is given the green light and a standard form of financing is secured, this will be used to pay back the first one. It can also be used to acquire equity for a property one currently owns for the purpose of purchasing additional real estate, then using the sale of the former to repay the financing.
When a business is in the process of acquiring new management, taking out such a loan can also be helpful in maintaining the company's finances until new investors take over. It also makes the purchase of discounted or properties which are being auctioned off possible since time is of the essence and it may not be easy to quickly obtain traditional financing.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The most common purpose for these loans is to enable timely investments that would otherwise not be possible due to timing or circumstances that are not in favor of obtaining traditional financing. The higher risk status of these clients is the main reason why the interest rate is higher.
Banks deal with lower risk applicants and require substantially more in the way of documentation before they will approve any borrowing. Those who are in search of bridge financing will normally turn to individual lenders, private companies, or investment pools.
The maximum loan-to-value ratio for commercial properties is 65 percent, based on it appraisal value. The loans may be either closed, which only guarantees its availability for a specific time period, or open, without a fixed date by which it must be paid off, at least not for some time. Subsequent bridge financing may be available for a lower interest rate as the risk is less.
An example of one application of bridging financing is to cover property purchase or improvement costs while the developer waits for a required permit to be approved. Once the project is given the green light and a standard form of financing is secured, this will be used to pay back the first one. It can also be used to acquire equity for a property one currently owns for the purpose of purchasing additional real estate, then using the sale of the former to repay the financing.
When a business is in the process of acquiring new management, taking out such a loan can also be helpful in maintaining the company's finances until new investors take over. It also makes the purchase of discounted or properties which are being auctioned off possible since time is of the essence and it may not be easy to quickly obtain traditional financing.
About the Author:
Tom G. Honeycutt is a full-time real estate entrepreneur in Atlanta, GA. Tom helps readers by providing practical and useful knowledge to better understand lending choices. If you are looking for Commercial Loans Financing | Atlanta, GA He suggests you check out the website iFund International.
Clopton Capital
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