There are a lot of different options when it comes to getting a commercial real estate loan. Fixed rate loans, construction loans, and mezzanine loans come with different terms and have different benefits depending on your situation and what you are looking for. One such loan is a bridge loan. Bridge lending is just like the name implies; it is meant to “bridge the gap” until long-term financing can be secured for the commercial property.
In some cases, the lender making the long-term loan will also make the bridge loan on the property or development. Most bridge loans come with very short terms, typically six months to
two three years, and many are not amortized (interest only payments with a balloon payment at the end). Interest rates on bridge loans are generally higher than the going market rate.
A bridge loan can be used for all asset classes, including multifamily housing, office buildings, retail centers, industrial buildings, or land development.
Fast Commercial Real Estate Bridge Loans – Do You Need Speed?
Whether or not a bridge loan is going to be the right choice for you will depend on why you need a loan. Here are a few situations in which a bridge loan could be beneficial:
- If an asset or a borrower can’t qualify for permanent financing, bridge loans can be used to solve issues that let the borrower qualify for permanent financing at the conclusion of the project.
- Bridge loans can be used when a borrower wants to stabilize the asset, rebuild a structure, renovate existing properties, or build from the ground up.
- Bridge loans can be used when ownership interests aren’t complete.
If you are simply trying to sell quickly, you’re looking for an investment property, a bridge loan may be the best option for you.
Like we discussed previously, bridge loans aren’t for everyone. Here are some pros and cons of using a bridge loan:
- Used when properties are not stabilized.
- Typically, quicker closings.
- A bridge loan can be somewhat of a failsafe in case you sell your old property or development before purchasing a new one.
- Bridge loans come with short terms, between six months and three years.
- Bridge loans are often interest only, providing a certain amount of flexibility.
- Bridge loans are a creative way to finance; typically, there is an interest reserve account for when a property is not performing.
- More expensive with higher interest rates + points.
- If you can refinance during the duration of the loan or you can’t refi, you could be put in a difficult situation.
- In the long run, a bridge loan could cost you more but if your proforma can absorb the higher cost.
There are pros and cons to any loan type, so it’s important to do your homework and talk to experts who can walk you through the bridge lending process.
Lincoln James Capital can help you find and secure CRE financing with the best terms
If you have commercial real estate investment opportunities, Lincoln James Capital can help get your deal done. We have extensive market knowledge and can help you make confident decisions. We have a large database of lenders with a wide range of possible terms. Keep in mind, we don’t make more money from higher rates. We get paid to get our clients the loans they need with the best terms (which is not always the best rate) so they can close their deals and continue to build their business and increase wealth.