What is Bridging Finance?
Once you understand what the term, Bridging Finance means, its easy to understand how it got its name. The purpose of a bridging or bridge loan is to provide short term cash for a real estate transaction until permanent financing is secured. Bridge loans are commonly used to bridge the cash gap when completing commercial real estate transactions.
Everyone knows its difficult to time the sale of one property to coincide with the purchase of another property. The slightest delay can wreak havoc on the transactions and create obstacles that are difficult to overcome. Having to pay two mortgages, whether for residential or commercial purposes, for any length of time can spell financial disaster. This is where bridging finance helps.
The goal of a bridge loan is to remove this financial obstacle so that a commercial transaction can proceed. In the majority of situations, bridging finance provides additional funding so a company can continue to pay the lease on its existing commercial property for as long as it remains on the market.
There is a process to go through before a bridge loan is approved. If youve already developed a relationship with an institution, thats a good place to begin. If not, its time to start looking for a lender with which you feel comfortable. Go through the bridge loan pre-approval process to see how much of a loan you qualify for. With pre-approval in hand, you can act quickly once a desirable commercial property becomes available.
One general requirement for obtaining a bridging loan is collateral. Most applicants will be asked to secure the loan with some sort of significant collateral. Examples of collateral include heavy machinery, business equipment, inventory, other commercial or residential properties owned by or the applicant and even properties involved in the purchasing process.
Having a great credit history, for both your business and your private life, and a solid relationship with a lender always helps when applying for a bridging loan. There have even been situations where bridge loans were approved with only a signature no collateral necessary!
Even with good credit, however, expect to pay a slightly higher rate of interest for this type of short-term bridge loan. One-half of a percent or more is typical. The maximum length of a bridge loan is usually twenty-four months. The lender has to make some money on the deal and the higher interest rate is where the opportunity lies. Other factors are also involved in determining the interest rate. The applicants calculated credit risk, the value of the items being used as collateral and the amount of time the loan is needed all factor into the equation, too.
If you think applying for a bridge loan makes sense for your situation, work with a US Commercial Lending organization that specializes in this type of loan. Theyll help with all the steps necessary and theyll offer advice along the way. Dont be afraid to shop around for better rates and terms! The commercial lending market is very competitive and its to your advantage to do business with a lender that will work with you and not against you.
About the Author
Commercial Lifeline are Commercial Mortgage and Bridging Finance specialists.
Download our free Commercial Mortgage guides by visiting our Commercial Mortgage Guide page.
This article comes with reprint rights. Feel free to reprint and distribute as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the link above is intact.
Credit Secrets! These are the SECRETS that the Credit Bureaus DON’T WANT REVEALED!