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.