Bridge Loans for Commercial Real Estate

08/02/2018

What does a commercial real estate investor do when they locate a property they want, but the propertyneeds significant renovation before it can qualify for permanent, long-term financing? Or what if the borrowers themselves are not yet able to qualify for permanent investing?

In situations like these, commercial real estate investors turn to bridge loans, which are designed to get investors through the gap that exists between acquiring a property and qualifying for permanent financing.

What is a Bridge Loan for Commercial Real Estate?

Bridge loans, also known as a swing loan, short-term financing, gap financing or interim financing, are short-term loans that allow investors to purchase commercial real estate when permanent financing isn't available yet.

When are Bridge Loans for Commercial Real Estate Used?

There are a variety of reasons an investor will turn to a bridge loan. A few common reasons are:

Significant Renovations Are Needed
Permanent financing can be difficult to come by when a property is in an enhanced state of disrepair. A bridge loan can help a commercial real estate investor get the funds they need to purchase the property and begin the renovations until the building qualifies for long-term financing.
Borrower Can't Wait for Permanent Financing
In this business, time is of the essence. Considering how quickly real estate investors can get a bridge loan closed, it may make more sense for them to go that route, instead of spending extra time procuring long-term financing. This way, a competitor can't slip in and grab the property first.
Unsatisfactory Rates of Occupancy
When a commercial real estate investor decides to renovate a multi-family home, it may take some time to get new tenants into the building when the job is done. A bridge loan can help the investor get through the early renting stage until the building has an acceptable occupancy rate.
Borrower's Credit Profile is Poor
If an investor has a less-than-ideal credit profile, a bridge loan can help. Since this type of loan is asset based, an investor can use it to get moving on a property quickly while giving them the time they need to work out their credit issues and gain the permanent financing they want.

How Does a Bridge Loan for Commercial Real Estate Work?

A hard money bridge loan is an asset-based loan, so the investor is borrowing against the property they have. The loans are short-term (typically 6 to 24 months), and they can be used to purchase various types of small commercial properties, such as apartment buildings, office buildings, retail complexes, raw land and more.

They close very quickly, and the loan amounts are based on the perceived value of the fully renovated property. Essentially, investors are able to get the capital they need to secure deals and make renovations. After that, they can either sell the property at a profit or refinance it into permanent financing.

Playing the Long Game

A bridge loan may be right for you, especially if there's a property you're eyeing that needs substantial renovation. To get an idea of the terms and conditions, simply contact a reputable bridge loan lender like Walnut Street Finance to see how you can get the immediate financing you need to get started on your next project.