What You Need To Know About Bridge Loan Financing
What are your Bridge loan financing needs? Are you stuck in a rut and needs a way out. There are essentially two ways to this kind of financing. Firstly, you can take it to eventually pay off all other kinds of loans and use the balance for financing. Secondly, you can take it as a second loan. Whatever your reason for making application, your financier will be the right person to discuss with you in great detail your financial needs and the best way forward to move before taking out the loan. Fix an appointment and discuss all the paperwork with him or her in great detail.
Sound advice that anyone making a desire should consider before applying for any form of bridge loan financing is to seek proper advice and do a thorough research on available options. One thing that you need to know that with sound advice and proper research you will be able to repay your loan without unnecessary penalties. Penalties of any kinds are a bad show and reduce your score which if possible should be avoided at all costs. Most borrowers make the worst mistake of borrowing from different entities. This might look effective but in the real sense can be quite dangerous if not handled properly.
If you have financial bridging needs, you need to find a provider that will understand your situation and is not out to wipe out your savings in case of any default. What you really need to understand that most of these bridge loans come with a higher interest rate. There is usually 1-2% interest pegged above the ordinary rates. If you find you are okay with this, then go ahead and make your application. The interesting thing is that with the advent of technology, it only takes a few minutes to make your application. Once your application has been received, an officer of the lending company will get in touch.
Just as the name suggests, the Bridge loan financing is a short term loan to help the lender find a level ground. It is normally borrowing for a shorter period of time. Once you are secure, it is important that you close your borrowing at the end of the agreed period. It really does not matter whether you are buying a new home, renovating the old one with a commercial rehab loan and simply need money for other uses. Bridging loan is a sure way of avoiding those embarrassing situations.
Two Demerits of Commercial Bridge Loans
With huge starting capital, most businesses and any commercial activity start after acquiring a loan to purchase necessary assets. However, with stringent and lengthy processes involved in getting a loan from relevant institutions, you are likely to fall behind schedule. What is the convenient option available to sort you out? Such question is likely to pop up in the mind of the young investor running on strict deadline with a schedule to accomplish.
Take a deep breath and relax because commercial bridge loans are there to help people like you. These are short term loan options providing a temporary financing option until you secure a more permanent financing option. The bridge loans frequently fund the renovations or purchasing of the real estate properties. Your plans don’t have to stall because you are waiting your long term intended financier. Keep the wheels rolling as you await the intended one to chip in and start realizing your profits even before the full swing. Such initiative is beneficial but has some drawbacks that you must consider when you take the commercial bridge loans. They include;
Large payments; the short-term lending period means it requires a quick repayment. With the interests factored in, the amount is more enormous. This can prove difficult especially to whose businesses have not picked up and can’t make the payment at once. The short repayment window makes it less flexible to late repayments and will automatically attract substantial fees and penalties. The increasing penalties will shift your focus from the business and channel your energies to clearing the loans instead. However, it can be avoided if you get the long term financing option you were waiting. This has to come before you begin defaulting the bridge loan and gather the additional default interests.
There is no guarantee that the facility you set up using the commercial bridge loans will sustain and pay back in time. If the project fails, the total funding goes up in flames and forces you as the borrower to seek other options to offset your loan. You are likely to be compelled to compensate using your money from other sources. The fear of bridge loan interests will force you to seek another loan to avoid the additional penalties. The accruing loan debts will automatically lower the credit rating making it harder for more financing in the future. To be safe, consider all the potential risks likely to be encountered and have a backup plan to bounce back in the case of any.
Given below is information on what to know about commercial bridge loans. There are people who refer to the bridge loans as swing loans but both terms typically refer to a kind of short-term loan that goes for a term of between one week to three years and it is usually taken to serve
an immediate need as the borrower awaits the closing of the deal on a more permanent form of financing. It is normally taken as an interim form of financing. Most of the time, the money once obtained from the more permanent form of financing is used to pay out the bridge loan and to take care of other capitalization needs.
Typically, the bridge loan will cost you much more than the conventional loans. This is simply because they come with higher hidden costs, points and interest rates and the fact that all these are amortized within a very short period. Adding to the fact that these loans come with an additional risk, the lender usually has to work with a lower loan to value ratio or to request for cross-collateralization.
The good thing about these loans is that the process of processing them is much faster and much shorter. Normally an interest of between 12% and 15% will be charged on these loans and between 2 and 4 points. The loan to value ration usually reaches a maximum of 70% for all the commercial properties and 80% for the residential properties. The loan to value ratio is usually based on the appraised value of the property.
It is possible to get either an open or closed bridge loan. An open bridge loan is one that comes with no specific pay off date while the close one comes with a specific pay off date. It is however imperative to note that it is possible for an open bridge loan to come with the requirement to make a certain payoff after an agreed time period.
It is very rare to get banks that will provide you with bridge loans. This is because commercial bridge loans usually come with very minimal documentation, are very risky and hold a very speculative nature. This is the reason as to why most bridge loans are given by businesses, investment pools and individuals who get to enjoy imposing higher interest rates on the borrowers.
The above information on what to know about commercial bridge loans is what you need to be armed with when you begin to consider the option of taking out a bridge loan.
Where commercial business loans are concerned, there are quite a number of options that one can explore. The terms and interest rates that are charged on these loans vary from one lender to the next. The short-term commercial loan will work very well for any person who is looking to fund a small project but there are also the long-term loans that can be used for much bigger projects and issues.
Typically the short term loan will come with a term of between one and five years. The long term loan son the other hand come with a much longer term of more than five years. Generally, the amount of money given for short term loans is much less compared to that given for long term loans. A large number of businessmen actually consider the short term loan to be an expense as opposed to being a form of financing. This is because of the impact that it usually has on the balance sheet and the income statement.
At this point you might be asking which one would work best for you. The choice that you make should depend on the purpose for which you intend to use the loan. In the event that you are looking to take care of a small project that can be completed within a short time period such as doing repairs here and there or buying certain equipment, it would be good for you to take the short term loan. Larger projects such as the replacement of equipment, expansion of business or a large scale repair job would typically require long term loans.
One p[point to note though is that the interest rates that are charged on the short-term commercial loan are normally much higher compared to those that are charged on the long term loan. This is mostly due to the fact that the short term loan requires to be paid back in a shorter time period. While looking to get this loan, ensure that you walk around and talk to various lenders before settling on a particular one. Make careful comparisons of the terms that you are being given and the interest rates that you are being charged.
After all is said and done, it is important that you take a loan that will match your needs at the specific time. You do not want to take a long term loan to purchase a machine with a short shelf life. You will find yourself still paying for the machine long after the shelf life of the machine is over.
Funny thing is that most people take that hard money loans and bridge loans to be the same thing. This is not the case; there is a very basic difference between these two. Not all bridge loans are hard money loans. Many investors make use of hard money loans for a wide number of things including bridge financing. The confusion mainly arises from the fact that the current bridge financing market is quite unhealthy which leads to a large number of investors opting to use hard money for their temporary financing needs.
Investors opt to use hard money bridge loans to satisfy their capital needs. For instance, you can want to buy a house and you stumble upon a greatly discounted house that is being foreclosed. You see that the deal is too good and you do not want to let it go. You want to buy the house so that you can rent it out but its condition is very bad and it needs a lot of renovation before you can be able to put it out in the market. No lender will be willing to advance you a long term loan to renovate the property due to the bad condition. A bridge loan will suffice at this point. In simple terms, a bridge loan helps you to survive between the time when you buy the house and when you will be able to get permanent financing to pay for the house. Investors used to approach banks to get bridge financing. However with the hard hit that the economy has been recently getting, many banks have opted to stop giving this type of financing and those that still do have put in place very tight limits.
With hard money loans on the hand, the money is sourced from private investors. The loans come with interest rates and origination fees that are a bit over the prevailing market rate. These rates though still lie between reasonable limits. Normally investors turn to them because they know that they can get this money quickly without having to go through a lot of scrutiny and they can pay it off quickly. The process that the private lenders will take the borrower through is much shorter and much faster compared to the one that the banks will take you through. This makes it easier for the investors to acquire the cash that they need for the current financing needs that they have. This is what has given rise to the hard money bridge loans.
Sometimes as an investor you may come across a property that requires quite a huge amount of money to purchase it but because of limited resources you forfeit that opportunity. What many investors especially the beginners are not aware of is that there are several financial institutions which provide short term hard money loans within a very short period of time. such kind of loans are usually preferable to huge investors such as real estate companies that often buy land and other property that they come across. The term hard is used simply because it is somehow hard to pay back.
These loans are normally provided by individuals or other small groups based on either your credit score or your collateral. The good thing is that you may have a low credit score but still qualify for the loan since what they usually look at is the size of your assets. If you are an investor and you are looking forward to increase your financing sources then these types of loans are best for you. However you should be aware of the risk involve before you get into it.
There are several pros and cons of short term hard money loans. Below are some of the advantages and disadvantages.
More options for collateral
The good thing about hard money lenders is that they accept many types of collateral unlike other financial institutions. You can even use your anticipated cash flow from the asset you want to buy or even your home as collateral. They can also lend you up to sentry five percent of the value of the property you want to buy. And just in case things don’t go your way and you are unable to meet the LTV ration then you are allowed to use assets such as your retirement benefits, house etc. as collateral.
These loans are very easy to get and most experienced investors use such loans to finance renovations and repairs since they can quickly close the transaction and then establish separate accounts with the financial institutions in order to pay for the renovations and repairs.
Higher risk and cost
One disadvantage of short term hard money loans is that they attract high interest rates and lenders always demand upfront fee. You also stand to lose your property used as collateral just in case things don’t work out.
In summary, short term hard money loans are a quick way of getting finances especially for the big investors such as real estate companies. However, it is important to understand the risk involved before applying for the loan.
How to get a commercial mortgage refi even with a poor credit score.
Countless times you have sat down on your favorite chair and thought about buying a new house. Your wife keeps complaining how the kitchen cabinets won’t fit all her cutlery that she wants, the oven is too small because she wants to bake. The next few words will tell you how to overcome this state.
Have a history. For most people with poor credit, you most probably made one deal that wrecked your financial flow or invested your money in the wrong pot. To get a commercial mortgage refi with poor credit, first and foremost you need a solid background. If you fall under this category, getting a financial donor to listen to your claim will help you move from where you are. In instances like this, the one thing you always need to remember is always state the truth on why something did not work out. For the bank to grant you your request, then you need to convince them, that you did not squander your money, it’s just that you had not insured your business which went down in a fire from the next store. All the financer needs is to trust you with their money with no reasonable doubt.
Commercial mortgage refi with poor credit is nightmare for everyone but you can always wake up on the right side of the bed. Sit down and look at where you flawed, create a list of what you did and where you went wrong vertically parallel to each other and on the third row create a solutions column. This is where you are going to list what you could have done different. If you did not insure your property, insure it this time round, if you loaned your brother in promise of getting it back in interest, invest it this time round. Then take the most probable solution that you have worked out and approach the financer with it.
The third and final step is actually waking up from your old broken one sided chair and going for it. The one thing that kills enough people and families is individuals who taught themselves how sit squarely on that one legged chair and not tumble on it. This means that you got comfortable when you fell and you have no reason whatsoever to come back because you went back to your mother’s house of your wife has a well-paying job. Commercial mortgage refi with poor credit is never a good place to be but since you are there now, why not do something about it in the first place?
That is how you use a bad state to overcome another.
A bridge loan mortgage is a short term loan that a potential home vendee can apply for in the event that he lacks adequate money to purchase a new home, while awaiting the sale of his current home. This means that the buyer will temporarily enjoy the ownership of both homes before the old one is sold. The old home will serve as collateral and will contribute largely in the repayment of the loan for the new home. If you are thinking about taking a bridge loan mortgage, here are facts you will consider knowing:
The repayment period
The duration taken to repay such kind of a loan is usually shorter than the conventional time allowed by bank loans. Usually this period averages between six months and a maximum of three years, reason being that the loan is just a bridge to cross you over to a point in time. The lender sweetens the deal by minimizing the troubles of a prolonged loan application process or disbursement time but will as well limit the demand time.
The interest fees
It’s generally accepted that the interest rates for this kind of loan will be higher than the mainstream bank loans. The lenders normally allow a more flexible repayment pattern in terms of installments but the interest rates remain inflated. However, this barely discourages serious buyers considering how fast their desires are met by the loan. Furthermore, the old home when sold will cover a great part of the loan so that the eventual amount will not seem large.
The exit strategy
Having an established way of settling the loan gives one confidence of approaching the lender. Most lenders will demand to see your intended ways of covering the loan before they lend you. More often than not they will emphasize on scrutinizing your credit worthiness or collateral security. A previous history of a successful timely loan repayment is an advantage because it actually boosts your credibility. On the same line, having a back-up plan such as another asset that you can sell to settle the loan is of equal importance. Bridge loan mortgage have no pre-payment penalties unlike other hard loans.
Approach to the lender
Private lenders require objective persuasion to lend by proving your loan worthiness. Therefore the approach you make will play a part in your chances of acquiring the loan. You will find it valuable to present yourself with a language that portrays commitment, confidence and professionalism. Abiding by the first hand rules that are set will put you at a better position also. Other demands should be made later.
Hard money commercial loans are known to give an alternative source of advance loan for commercial purposes for which mainstream funding is unavailable. Majority of the people who apply for these types of loans use them for intentions such as high-risk investments that require huge capital. Entrepreneurs utilize any opportunity they find in the market, but not once have they encountered financial restriction. Conventional banks limit their loans to particular levels, and that is the point that these hard money commercial loan lenders come in. Here is what you need to know:
The application process
Getting this type of loan has proved much simpler than the usual financial institutional loans. The lenders are a phone call away. What you need is to present your need with your credentials on the negotiation table. The lender’s interest is to evaluate your enterprise in terms of its ability to cover the loan. Their aim is usually to retain their capital and to get profits through the interest charged. The disbursement of the funds is quick as long as the agreement is reached.
The interest rates
The lender is aware that the loanee is engaging in a high risk business that few or none other financier can easily loan. He will therefore have the liberty to hike the interest rate as a monopoly in this field. This is however not meant to discourage the loane. The interest rate is also constant even if payment is done before the repayment period.
It is imperative to have collateral when or before applying for a hard money commercial loan. The lenders will hold onto that asset you provided as collateral to compensate for the loan in case loan repayment is declined.
Duration of loan
The loan period is always short –a rule of the thumb for these kinds of loans. The maximum duration of these loans will hardly exceed three years although they might vary with the lender. For new loanees, a short duration is assigned for the lender to assess your creditability status. Punctual repayment of the loan increases your loan limit as well as your credit worthiness.
The lender will be particularly keen on assessing your documented plans in the line of you sources of funds to successfully clear your loan. They often reference to Loan to value (LTV) that is how successful your enterprise is or how long you have been in business. The markers of such factors are such as favorable credit scores and preferable proceeds.
WHAT TO KNOW ABOUT SHORT TERM COMMERCIAL LOANS
Short term commercial loans are given, upon application by financial institutions to both small and blue chip corporate entities to finance its short term operations like expenditures. Also where there is an emergency on financial or a crisis that needs money as soon as possible to sort out the issue. These short term loans come in hand because they become a great solution in terms of finance to those corporate or organization who are faced with hindrances of covering expenses which emerge to be of urgency. Traditionally, debt financing only occurred with loans that would take a period of 5 years or more to be able to repay it back. However with these emergencies, the short term commercial loans have made it easier for business entities to finance their operations.
Short term commercial loans have strict terms before a financial lending institution approves your loan request. In some cases the lender request to look at the company’s books to ascertain it credit worthiness before granting the loan request. The time limits for short term loans are strict and may range from a few months to one year. The borrower stipulates what the intended purpose for requesting the loan and when it is likely to be financed with the specified interest rate.
Many reputable lending institutions provide these loans by physically going to the banking premises or by doing it online where one has a busy schedule upon filling the requisite forms. Advisably, it is important to visit the bank and talk to the guys at the credit section to find out the packages they have, the interest rate chargeable and the repayment period that works with the period that you are able to service the loan.
It is advisable for one who intends to seek a loan to know and fully understand the pros and cons of short term commercial loans before proceeding to apply because one big disadvantage of applying these loans is that they are much more expensive by reducing profit margins due to the high interest rates than long term commercial loans and if one is not careful enough they will end up worsening their financial situation and even will put one in the bad side of the lenders because maybe the borrower might have delayed paying up all the money plus interest as agreed hence defaulter as rarely do loan lenders desire to work with culprits of defaulting and even one can be put out of business.