All About Bridge Loans
All About Bridge Loans
Bridge loans are a short term loans which are often used to either turn a business around or secure a new property/opportunity. They are mostly secured by either commercial or residential real estate. Borrowers that are use to typical bank loans are often surprised by the terms and procedure that are required with bridge loans.
For example most bridge loans max out a 60 65 loan to value. And if you have a special use property like a restaurant you will most likely not find financing beyond 50 loan to value due to the credit crisis. One of the biggest issues with loan to value and bridge lenders terms in general is that they normally go off a much lower value than borrowers are use to. If you think your property is worth 2000000 theyll most likely say its worth 1.5.
Bridge Loans Value
Bridge lenders look at value in terms of what will they be able to sell the property for in 2 4 months with the borrower gone windows broken utilities cut i.e. what they can dump the property for in a state of foreclosure. Borrowers in contrast are use to a selling period of 912 months listed with a reputable broker getting a fair market value without undue influence.
Terms from Bridge Lender
If you have received a term sheet lately from a bridge lender you may have also been surprised by the double digit rates and high points that the lender asked for. This is market. If you have a very clean deal on say an apartment building or office complex the best you can get is 2 points and a rate at 9.95. On the business turnaround situation where the borrower needs to consolidate debt and pull cash out to recapitalize the business the borrower should expectterms at 3 10 points and a rate 13 18. We see rates like this much more often than on the apartment building example.
All of these bridge loans are interest only and normally have terms between 12 24 months. Borrowers should be conscious of what the extension periods are if any are offered so that they can curtail potential issues. I.e. what happens at the end of the term and the borrower cant sell or refinance the bridge loan?
About the writer: Jeff Rauth is President of Commercial Finance Advisors Inc out of Birmingham Michigan. 248 8858797. commercial hard money loans or commercial bridge loans or commercial hard money
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