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السبت، 1 نوفمبر 2014
When an investor has interest in a particular property but there happens to be a gap between when financing will become available and the closing date they do not have to pass up the opportunity. Instead, it is possible to secure a temporary form of financing called a "bridge loan". Anyone who is curious what is a commercial bridge loan will find the following information to be helpful.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
The higher interest rates, higher risk, and marginal documentation requirements does not fit the lending profile of most financial institutions, which is why banks do not offer them. The source of this financing is usually from investment pools, individuals, or private companies.
The highest commercial loan-to-value ratio available based on the property's appraisal value is 65 percent. It may either be closed financing which is available for a designated period of time, or open, which means that there is no specific pay off date established from the start. If the investor wishes to apply for additional bridging later on, a lower interest rate should be given as the risk is also lower.
An example of one application of bridging financing is to cover property purchase or improvement costs while the developer waits for a required permit to be approved. Once the project is given the green light and a standard form of financing is secured, this will be used to pay back the first one. It can also be used to acquire equity for a property one currently owns for the purpose of purchasing additional real estate, then using the sale of the former to repay the financing.
Businesses that are in the process of changing management on some level may also find it useful to obtain bridge financing to stay afloat while in search of new investors. It can also be used for the quick purchase of a discounted investment or auctioned-off property without all the red tape associated with traditional means.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
The higher interest rates, higher risk, and marginal documentation requirements does not fit the lending profile of most financial institutions, which is why banks do not offer them. The source of this financing is usually from investment pools, individuals, or private companies.
The highest commercial loan-to-value ratio available based on the property's appraisal value is 65 percent. It may either be closed financing which is available for a designated period of time, or open, which means that there is no specific pay off date established from the start. If the investor wishes to apply for additional bridging later on, a lower interest rate should be given as the risk is also lower.
An example of one application of bridging financing is to cover property purchase or improvement costs while the developer waits for a required permit to be approved. Once the project is given the green light and a standard form of financing is secured, this will be used to pay back the first one. It can also be used to acquire equity for a property one currently owns for the purpose of purchasing additional real estate, then using the sale of the former to repay the financing.
Businesses that are in the process of changing management on some level may also find it useful to obtain bridge financing to stay afloat while in search of new investors. It can also be used for the quick purchase of a discounted investment or auctioned-off property without all the red tape associated with traditional means.
About the Author:
Tom G. Honeycutt is a full-time real estate entrepreneur in Atlanta, GA. Tom helps readers by providing practical and useful knowledge to better understand lending choices. If you are looking Commercial Real Estate Mortgage Lender Loans | Atlanta, GA He suggests you check out the website iFund International.
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