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.
There has been a lot going on in the credit market. People because of one reason or another are unable to meet their daily needs forcing them to seek commercial bridge loans. Bridge lenders look for a few things and as a customer you should be ready to provide the required information i.e. if you intend to be served. The finance industry is growing and customers are now able to bridge their loans with maximum ease. Before we move any further it is important to give a simple explanation what bridge loans really are.
As their name suggests ‘bridge loans’ are in fact a financial bridge until your next financial transaction. They are not limiting and can be used in any sector from mortgage financing to pay hospital bills. They have an endless list and lenders will understand your need before being approve the loans. This is to help us as a company matches you to the right loan facility. Bridging loans take only about 72 hours to be approved and should not cause any hassles if your paperwork is in order. This will also give us a chance to know what to base the loan on.
If your financial breakthrough is taking longer than anticipated, simply apply for commercial bridge loans. The loan period differs from institution to institution but it can go as 24 months. One thing you need to realize is that bridge loans come with a hefty interest and if you are in a financial crisis. You must be ready to pay. This in essence is your stepping stone to a long finance as in most cases. But this has been occasioned by the fact that they also have a higher default rate which a lender must be ready to meet.
Commercial bridge loans come up to about $25,000,000. So if you need such kind of a loan you must be ready to put it to good use and be ready to make repayments as agreed. Some companies will require you to pay a principal sum which in essence is refunded to you upon completion. If you have a burning financial need, do not seek the services of friends simply go to a money lending facility that will ensure that your account is credited in 72 hours. It will remain a secret and nobody will be able to know your source of financial increase.