What Are Commercial Bridge Loans
20 June 2016
People may think that a Commercial Bridge Loan means that someone is receiving a loan to build an actual bridge intended for commercial use. That is an understandable misconception, but commercial bridge loans are, in fact, a type of alternative financing for many types of commercial real estate properties.
"A Commercial bridge loan is short term financing that is best used to fill the gap of time a borrower needs to qualify for a conventional loan or complete their commercial property objective".
In the commercial real estate market, a borrower has multiple options for financing. The most common of which are portfolio loans or government backed loans that are offered by conventional lenders. However, there are a variety of circumstances a commercial borrower might face, which could make getting a conventional loan difficult or impossible. For instance, a commercial real estate borrower may have an imperfect credit history. Late payments, tax liens, foreclosures, bankruptcies... they happen. Other reasons for a borrower to not qualify for a conventional loan include, having a high level of debt, or possibly not possessing documented financials a conventional lender requires to qualify for their loan programs.
For the reasons mentioned above, a borrower can look towards obtaining interim real estate financing in the form of a bridge loan. A Commercial bridge loan is short term financing that is best used to fill the gap of time a borrower needs to bring their financials in line to qualify for a conventional loan or possibly complete their commercial property objective. An example of a possible objective would be a borrower looking for financing to construct a commercial property development project. Not all lenders want to take the risk of lending out money for development projects. Commercial bridge loans make it possible for developers to obtain the financing they need to fund projects that other lenders might shy away from.
Bridge loans are typically interest only loans without prepayment penalties, which are made for a one to three-year period. Higher interest rates and loan fees are common with bridge lending. This is because a bridge lender has to account for a higher level of risk they are taking on by making the commercial bridge loan.
Commercial bridge loans are an invaluable financing option for the segments of the real estate market that cannot obtain conventional real estate financing. In up or down real estate markets borrowers commercial bridge loans have made it possible for borrowers to achieve their funding goals.
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