Evaluating Bridge Loans: Are They a Smart Financing Option for Commercial Real Estate?

If you are into real estate, then you must probably have been in a situation where you found the perfect office building. Still, you didn't have enough cash to close until your current property was sold, or maybe there was a situation where the renovation project was taking way too longer than estimated to complete. Your next balloon loan payment is due in the next few weeks. In such a situation, commercial real estate investors generally choose to get bridge loans. It helps get fast cash. Now, if you are unaware of commercial real estate bridge loans, make sure that you read till the end, as it will completely blow your mind. Understanding commercial bridge loan You must have heard of a lot of financial options out there, but a Bridge loan happens to be the fastest option available when you need cash quickly. In simple words, the bridge loan means filling the gap between the short-term loan that is used for work such as redevelopment or new construction and securing more permanent long-term financing. In some cases, bridge loans are also known as interim financing or swing loans. It allows the borrowers to pull cash from the property to pay off the existing loan or settle other debt obligations. How does a commercial bridge loan work? Now, when you talk about commercial real estate bridge loans, they are structured by a commercial mortgage lender to meet the specific needs of the borrower. Generally, interest rates and financing fees here are normally higher than those of traditional loans. However, the funding is a lot faster, and the loan comes with flexible terms and conditions. In this scenario, you will see the loan-to-value ratio of the commercial bridge loan will be between 65% and 80% of the appraised value of the property. In case the building is being renovated, then the lender will make use of the loan to cover the cost, which will take into consideration capitalized capital expenditures. Now, here are scenarios where a commercial real estate bridge loan can be a great solution. • When you want to take advantage of an immediate opportunity to acquire a property and then refinance it with a more affordable long-term traditional commercial real estate loan, • When you wish to use a commercial real estate bridge to acquire a new property before selling the current one, especially when the business needs to expand or downsize. • When you need money to make improvements to attract tenants while paying off higher loans and increasing the long-term growth rental income. This way, you will be able to qualify for a better commercial bank loan easily in the future. • When you wish to stabilize an office building so that the long-term cash flow and debt obligations meet the requirements of a traditional loan. Pros and cons Now that you know about these conditions where commercial real estate agents will work the best, here are certain pros and cons you need to be aware of. Pros • Helps get immediate funding for acquiring property or for the existing one. • Offer a chance to get faster funding, which makes commercial bridge loans the perfect solution when time is of the essence. • Bridge loan lenders are generally more willing to think outside the box, with less focus on the credit score of the borrower and more attention on the viability of the acquisition or the renovation project. Cons • The property against which the borrower is getting the money must be used as collateral for a commercial bridge loan. It puts the entire investment at risk in case of unpaid dues. • Other properties put out as collateral can also be at risk if the payment is not made on time. • You might have to pay a higher fee both upfront and upon repayment, which can create a crash crunch. Conclusion In case you find a commercial real estate bridge loan can be a great solution for you, then you better get in touch with Private Capital Investors for the right solution. They have a team of experienced professionals who can guide you in the right direction. They will guarantee you are able to acquire financing as soon as possible. They will help you understand all the terms and conditions of commercial bridge loans and how they work in real estate and ensure an easy borrowing process.