Commercial Bridge Loan

A commercial bridge loan broken down to bare basics is a loan that is taken out to cover a commercial property until some other form of financing can be obtained or qualified for. Although that is a very simplistic way to look at it that is what it is.

The biggest advantages of commercial bridge loans are its speed and lack of paperwork. The loan is usually granted on the merits of the property itself not the person who is borrowing the money. A commercial bridge loan does not usually require any form of credit check on the borrower at all and uses the property and its value as the collateral for the loan.

Commercial bridge loans can often be obtained and closed within a day or two making them very fast. A commercial bridge loan is often used when the borrower needs to close quickly on a property, to take advantage on a short term opportunity or to retrieve property from foreclosure.

Some times a commercial bridge loan is needed to give a borrower a little more time to prove credit worthiness to a traditional lender. Sometimes it is used to improve a property to the standards that a traditional lender requires to make a loan.

For whatever the reason, a commercial bridge loan can be a lifeline when needed because it will often close within a few days rather then the weeks or months needed for a standard loan. This type of loan is often used for a property auction because auctions only grant 28 days to complete payment.

They are also used in construction when time is needed to obtain permits and such to qualify for conventional loans. They are also sometimes used to upgrade a property to a level that can be covered under a conventional loan because most lenders will not allow a commercial property that is in fair or poor condition or does not have enough tenants to make the income requirements.

Commercial bridge loans do however have big disadvantages and should only be used in certain situations. These loans are interim financing and should be treated as such and quickly paid off.

Commercial bridge loans are low value ratio, very short term, and high interest and point rate loans. These loans are usually done through the a private lender who is either a wealthy individual looking for a tax break or a small lending company willing to take big risks. Generally a commercial bridge loan has a low loan to value ratio and will only cover the value of the property by around 60%.

They also have a 10 to 15% interest rate and a 1to 5% points system along with other things like extra collateral and equity participation making them very expensive to pay back. A commercial bridge loan is a very short term loan and is usually offered for between a few weeks to up to a 3 year period of time.

Once the term of the loan is reached a balloon type payment becomes due or in other words the loan must be repaid. Because commercial bridge loans offer such a short payoff time you should be very sure of your future financing or exit strategy before taking one on.