Intro
Bridge Financing or a Bridge Loan is used as temporary or interim financing until permanent financing can be obtained. It is typically more expensive than conventional financing but is often arranged quickly. The lending duration will be anywhere from several months up to a maximum of 3 years.
Use
Bridge financing is often used for purchasing commercial real estate to close quickly, avoid foreclosure on a property, take advantage of a short-term opportunity or to purchase a property that might not qualify for conventional financing until it is renovated or stabilized.
Characteristics
Bridge financing interest rates are typically 10% - 15% with fees of 2-4 points. Loan-to-value ratios are from 60% - 75%. The term is often fixed but there are usually no penalties to pay it off early.
It may be registered in first of second position depending on the requirements of the borrower and the lending parameters of the finance company.
Summary
Each lender will have their own document requirements and due diligence process. Also, the lender may a have specific property types, locations and loan amounts that they work with so you might have to shop around to find an lender that will take on your project.
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