What to Know About Bridge Loans
Are you trying to purchase a property for $10 million? If so, you can likely source about 25 percent of this money from equity sources like business partners, family, friends, crowdfunding, or real estate investors, along with your own vested interest. However, where can you get the other 75 percent?
There is an array of financing options, which means it may be hard for you to figure out which ones make the most sense. One option to get the financing needed is bridge debt. However, you have to consider your situation carefully to determine if bridge loans are a smart option for you.
What Is Bridge Debt Financing?
Bridge loans are defined as being a “short term loan that is used until a company or person can secure permanent financing or if they remove an existing obligation.” This financing type is secured by the real estate asset, will usually require case flowing assets, and the loans usually have a floating rate and may incur a higher interest rate than the comparable options of permanent debt. The loan is also characterized by a shorter term and can include future funding or structuring to help facilitation the costs related to repositioning the property.
Bridge Loans and Real Estate Transactions
In real estate, bridge loans can be used for several reasons, including the purchase of a property under a tight closing timeline, selling a property in a short period of time, or renovating the property quickly. Other people will use bridge loans for saving a property from foreclosure, to find a new tenant, to stabilize the property’s cash flow, or to resolve a short-term problem that has begun to affect the property. It’s also beneficial for a borrower who does not have the credit rating to secure a traditional bank loan.
The Main Benefits of Bridge Financing
The primary benefit offered by bridge debt financing is the flexibility it offers. With this lending option, you can acquire the short-term capital needed to handle your current cost obligations, to handle renovations, quickly close on a property, or to help you find tenants for the property.
When it comes to securing financing, there are more than a few factors to consider. Be sure to keep the tips and information about bridge loans and how they work in mind. This is going to help ensure you get the financing you need and that you don’t have to worry about where the capital you need is coming from.