Commercial Bridge Loans

Use of bridge loans obtained from business contacts or private lenders to meet an urgent check payment or settle overdue supplier payment are part and parcel of world of commerce. Commercial bridge loans are used to meet urgent need for huge amounts for business purposes. Some features of commercial bridge loans include

  • Very Short Term Loans

Commercial bridge loans are probably the only loans offering funds in excess of a million dollars for a span of a few months. As the name suggests, such loan are offered only when there is a clear exit strategy in hand.

  • High Interest Rate

Short term loans always charge high interest rates. Commercial bridge loans charge 200 – 300 basis percentage points more than commercial loans. Commercial bridge loans are suitable for short term durations. Borrowers can extend duration by paying additional fee or excess interest to lenders.

  • Collateral Is A Must

This is not an exacting requirement. All real estate related commercial bridge loans require the property being purchased as collateral. In case of all those commercial bridge loans where property is being refurbished, equity in the same can be offered as collateral.

  • Specific Loan To Value Ratio

Loan to value ratio of commercial bridge loans refers to the ratio of loan amount required to the value of the commercial property. A loan to value ratio of 70-80% is the industry standard. On a property or collateral worth $500,000, commercial bridge loans providers may offer loans up to $400,000 and not more.

  • Rapid Processing and Disbursal

High costs and collateral requirements of commercial bridge loans are compensated through extremely quick disbursal of loans. These temporary loans are taken to utilize profitable opportunities available for short durations. Applying to banks or other formal lenders never works due to the formalities involved. Commercial bridge loans get approval and are disbursed in just 24 hours after submission of necessary details.

  • Suitable For Those With Poor Credit Worthiness

Credit worthiness is not a serious issue as high collateral is an integral part of commercial bridge loans. Very poor credit score borrowers too have the option of securing these commercial bridge loans provided the security is good enough. The short term nature of the loan too helps mitigate risk for lenders of commercial bridge loans.

Commercial bridge loans are commonly used in Real estate sector. Most common applications of commercial bridge loans include

  • Purchase

Arranging for funds to buy a million dollar property from a commercial bank takes time. Commercial bridge loans can be used to secure six to twelve months to complete these formalities.

  • Renovation

Dilapidated property assessed at low value by traditional lenders can be renovated through commercial bridge loans refinancing. The improved property can be offered as security to secure refinancing from traditional lenders.  

  • Sale

Cash flow problems due to delay in finalizing sale can be overcome by leasing the property and securing such loans. Extra time will help avoid distress sales without paying very high interest rates.