Short term loans, known as bridge loans, are a good source of quick income to avoid penalties or problems. Learn what a bridge loan can be used for and how its terms differ from other types of loans.
2004-08-27
Bridge loans are loans with a short ‘term’. A bridge loan's terms range from just a few days to as much as 5 years. Personal loans of a” few dollars ’til Saturday” notwithstanding, bridge loans are generally used for commercial real estate purposes to enable a quick closing, allowing the borrower to take advantage of an opportunity and arrange for longer term financing at his/her leisure.
Real estate bridge loans are used for both purchases and refinancing. Speed is often of paramount importance in bridge loans. Either the borrower is faced with an opportunity, such as the chance to purchase a property, business or other residence at an excellent price if s/he moves quickly. Or the borrower is staving off a problem, such as restructuring debt or avoiding bankruptcy.
Hard money bridge loans are made based on the current selling price (value) of the real estate to be collateralized. Such bridge loans can close with little documentation/paperwork in as little as two weeks. This is not to say that the bridge loan is made without careful attention to the value of the collateralized property. If you are considering obtaining bridge loans for purchase or refinancing of an existing property, you will need a recent (3 months or less) appraisal, photos of the property and the area, an indication of how you intend to be able to afford to pay back the loan, how the property will make income, if applicable, etc. What you won’t need is to wait for 4-8 weeks while a bank obtains your credit reports, reviews your previous business activities, residences, etc. Hard money bridge loan lenders are interested in the project as it stands today. Naturally, if you have a history of poor credit, the lender will want to know why this project will be different than others in your past. You cannot avoid all scrutiny. But hard money bridge loan lenders tend to have more flexibility in their lending criteria and can be reasonable to work with.
The trick to getting affordable hard money bridge loans is to work with a direct bridge loan lender. If you have never obtained a bridge loan, you might look into working with a broker. Most ‘lenders’ who purport to make bridge loans (hard money or otherwise) are actually brokers. Their services can be valuable and include helping you locate the right direct lender for your project and helping you to prepare the application documents to your best advantage. However, bridge loan brokers (as with other brokers) are paid in points on your loan. They collect anywhere from 2-4 points or more. The more brokers involved along the way – some brokers will contact other brokers who will contact yet more brokers before getting to the direct lender who will fund your bridge loan – the more points you will pay. Asking bridge loan specialists whether they serve as brokers or direct lenders does not always yield an accurate response. You have to be specific and tenacious in order to determine whether the party you are speaking with is really prepared to fund your bridge loans in-house and without ‘farming out’ the loan to another lender. If you plan to make real estate investment a regular part of your business life, finding a direct bridge loan lender can be worth the effort.
Real estate bridge loans are used for both purchases and refinancing. Speed is often of paramount importance in bridge loans. Either the borrower is faced with an opportunity, such as the chance to purchase a property, business or other residence at an excellent price if s/he moves quickly. Or the borrower is staving off a problem, such as restructuring debt or avoiding bankruptcy.
Hard money bridge loans are made based on the current selling price (value) of the real estate to be collateralized. Such bridge loans can close with little documentation/paperwork in as little as two weeks. This is not to say that the bridge loan is made without careful attention to the value of the collateralized property. If you are considering obtaining bridge loans for purchase or refinancing of an existing property, you will need a recent (3 months or less) appraisal, photos of the property and the area, an indication of how you intend to be able to afford to pay back the loan, how the property will make income, if applicable, etc. What you won’t need is to wait for 4-8 weeks while a bank obtains your credit reports, reviews your previous business activities, residences, etc. Hard money bridge loan lenders are interested in the project as it stands today. Naturally, if you have a history of poor credit, the lender will want to know why this project will be different than others in your past. You cannot avoid all scrutiny. But hard money bridge loan lenders tend to have more flexibility in their lending criteria and can be reasonable to work with.
The trick to getting affordable hard money bridge loans is to work with a direct bridge loan lender. If you have never obtained a bridge loan, you might look into working with a broker. Most ‘lenders’ who purport to make bridge loans (hard money or otherwise) are actually brokers. Their services can be valuable and include helping you locate the right direct lender for your project and helping you to prepare the application documents to your best advantage. However, bridge loan brokers (as with other brokers) are paid in points on your loan. They collect anywhere from 2-4 points or more. The more brokers involved along the way – some brokers will contact other brokers who will contact yet more brokers before getting to the direct lender who will fund your bridge loan – the more points you will pay. Asking bridge loan specialists whether they serve as brokers or direct lenders does not always yield an accurate response. You have to be specific and tenacious in order to determine whether the party you are speaking with is really prepared to fund your bridge loans in-house and without ‘farming out’ the loan to another lender. If you plan to make real estate investment a regular part of your business life, finding a direct bridge loan lender can be worth the effort.
