Bridge Loans​

A bridge loan is a form of short-term financing that can serve as a source of funding and capital until a person or company secures permanent financing or removes an existing debt obligation. Bridge loans (also known as swing loans) are typically short-term in nature, lasting on average from 6 months up to 2 years, and are often used in commercial real estate transactions. They can be used as a means through which to finance the purchase of a new property before selling your existing property.

• Quick Financing: Bridge loans offer swift financing for investors who need to move quickly to close a deal.
• Transitional Periods: They’re ideal for properties transitioning from one phase to another, such as a vacant property that needs renovation before being leased or sold.

• Interest Rates: Since bridge loans are short-term and involve higher risk, they usually come with higher interest rates than traditional loans.
• Payments: Borrowers might pay interest-only payments for the duration of the loan, with a balloon payment (full repayment) at the end.
• Collateral: These loans are usually secured by the property itself, though the specifics can vary.

• LTV: Lenders might provide a loan amount based on a certain percentage (e.g., 70-80%) of the property’s appraised value.
• LTC: This measures the loan amount as a percentage of the total acquisition and renovation costs. If a project costs $1 million in total (purchase + renovation) and a lender provides an $800,000 bridge loan, the LTC is 80%.

An essential aspect of a bridge loan is the exit strategy, as these loans are temporary. The borrower must have a clear plan to repay the loan, either by selling the property, obtaining longer-term financing, or another means.

• Property Acquisition: If an investor identifies a property they want to acquire quickly and doesn’t have immediate access to capital or if there’s competition for a property, a bridge loan can provide the necessary funds rapidly.
• Renovation or Repositioning: If a property needs improvements before it can be leased or sold, a bridge loan can fund these renovations.
• Refinancing: If a borrower has an existing loan that’s maturing and they need more time before qualifying for a traditional loan, a bridge loan can provide a short-term solution.

• Speed: Bridge loans can be processed faster than traditional loans.
• Flexibility: These loans are more flexible in terms of borrower qualifications and use of funds.
• Opportunity Realization: They allow investors to seize time-sensitive opportunities.