Why Bridge Loans are so Useful for CRE Investments
If you’re in the commercial real estate (CRE) business you may on occasion find yourself in need of additional financing. Bridge loans can be a great tool for short term funding. These loans are designed specifically to cover short term gap periods where other funding may not be an option. Continue reading to learn more.
What They Are
There may come a time in your real estate career where you have an opportunity to start a new project or gain a new property, but have your assets tied up in other areas. A bridge loan is designed to provide short term funding during this gap periods. They are also known as swing loans, and interim or gap financing.
Because they are intended for short term financing and carry a greater risk to the investor, these type of loans may have high rates than other types. Terms usually range between six months to one year although in some cases may be extended. A bridge loan may also require backing with inventory or real estate as collateral. Repayment is generally expected after the project has finished, the borrower acquires permanent financing, or a tenant is gained.
How They May be Used
Because they can be customized by the lender to fit the borrower’s situation, many CRE investors find bridge loans useful in a variety of scenarios. They can be used to help make payments prior to the acquisition of permanent financing, complete a short term project, or used to invest in a new opportunity that may only be around for a short time. These loans can also be used to provide working capital such as payroll, utilities or rent.
The short term nature of bridge loans means they work well in situations where you know you’ll have funds with a little time, but need a loan to carry you over until then. They may also be able to provide funding in situations where you need a little extra in order to complete a project quickly for sale.
If you’re in a period in between investments where you need funds to start work on one project before another has turned a profit, you may be interested in bridge loans. They can allow you to take advantage of opportunities you may not have otherwise been able to. If you think this may be the right loan type for you, it may be a good idea to talk to your lending institution to learn about the options available.