Sometimes there is a gap between the closing date of a property and the date that long-term financing will be accessible. In such cases, the investor need not pass on these real estate purchases, because it is possible to take out a "bridge loan". Those who are wondering what is a commercial bridge loan, will find this guide to be of assistance.
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 highest loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One example of where this type of borrowing serves its purpose is during the time when a developer needs to await the approval of a permit. If all goes as planned and the project goes ahead, the next level of financing will then be drawn on to cover the cost of the bridge loan. It can also be used as equity on properties currently owned which close after others which the investors wishes to purchase, the sale of the former paying off financing for the latter.
During changes in management of a business, it can also be helpful to acquire this sort of financing as it provides funding until a new investor is found. The purchase of auctioned-off properties, or quick-buy discount investments, is also enabled through bridging options that can make things happen more quickly than most traditional forms of lending.
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 highest loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One example of where this type of borrowing serves its purpose is during the time when a developer needs to await the approval of a permit. If all goes as planned and the project goes ahead, the next level of financing will then be drawn on to cover the cost of the bridge loan. It can also be used as equity on properties currently owned which close after others which the investors wishes to purchase, the sale of the former paying off financing for the latter.
During changes in management of a business, it can also be helpful to acquire this sort of financing as it provides funding until a new investor is found. The purchase of auctioned-off properties, or quick-buy discount investments, is also enabled through bridging options that can make things happen more quickly than most traditional forms of lending.
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 Commercial Property Lender Loans | Atlanta, GA He suggests you check out the website iFund International.
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