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.