If you are in the real estate business, you should know what a commercial bridge loan is. Real estate requires sufficient funds, and sometimes they are needed in a short notice. Startup businesses typically do not have the qualifications that are required by lenders to get the funds. However, a commercial bridge loan can help with your financing needs.
What Is a Commercial Bridge Loan?
A commercial bridge loan severs as short term commercial real estate financing. It helps make improvements to real estate property so that they can be sold for a profit or to use the property for business operations.
With this type of loan, lenders base the amount on the condition of the real estate, not what it needs on improvement. There are two ways in which the term loan ends which is the borrower gets approved for long-term financing or the borrower sells the property.
How Does a Commercial Bridge Loan Work?
The borrower first needs to determine what it is going to take to make the upgrades to the real estate property. If it is approved by the lender, the interest rates and fees will vary based on how much risk is involved.
The market plays a big role in the approval process as well. Factors like whether it is a buyers’ market or sellers’ market matters. Lenders also take into account such as the assets of the business owner and the property value to figure out the amount of the commercial bridge loan.
Different Uses for Commercial Bridge Loans
There are a few different ways small business owners can enhance their business with a commercial bridge loan.
- Improve creditworthiness: this loan is flexible enough so that you can get approved in a short amount of time while you repair your credit if needed. Whether you have insufficient or poor credit, the loan help you fix it.
- Quick to secure ownership: lenders approve a loan within two to five weeks.
- Supply the need for some of the funds: a lender will supply funding up to certain amount and then the borrower pitches in for the rest.
- Fill tenant vacancies: a loan to repair and upgrade a property makes it more attractive to increase the ratio of occupants.
- Purchase a building: borrowers can use a commercial bridge loan to purchase apartments, office space, duplexes, or retail suites. They can build from the ground up by destroying an old building or buying a vacant land.
What Is the Difference Between a Commercial Bridge Loan and a Stated Income Business Loan?
The approval process for a stated income business loan is simple and short. Borrowers qualify based on the income they claim they make on a monthly or annual basis. Stated income lenders do not require you show proof of your income, but they may view your credit file to make sure that your statement sounds true.
Commercial bridge loans are for real estate or operating building ventures. They also differ from stated income loans because lenders look at other criteria to make their decision on the loan.
Is This Loan Right for You?
First, you need to find out if it is right for you by thinking about your business goals and then see if you will qualify. The following information is something you need to evaluate if you are considering this loan.
Pros of Commercial Bridge Loans
- Short term
- Fast approval
- No cap on amount of loan
- Versatile property and usage
Cons of Commercial Bridge Loans
- Minimum loan of one million dollars
- Complicated rate and fee schedule
- Credit score of at least 650
- Need cash to pay interest to lender while building is in construction
- Net worth
- Debt service coverage ratio (DSCR)
The Bottom Line
A commercial bridge loan may be a good fit if you are looking for a temporary solution to acquire property. Seek help from a credit expert if you need to figure out if the funding works for your business needs.