Commercial property owners can raise short-term funds through bridge financing from hard money lenders. A hard money bridge loan is a popular form of commercial real estate financing specially designed for those property owners who plan on selling or refinancing their commercial property.
Any commercial property can be used as collateral to secure a short-term bridge loan. Apartments, office buildings, medical facilities, industrial warehouses and hotels are just some of the various classes of commercial properties that are eligible for commercial hard money bridge loan. Any income producing property zoned for commercial use should qualify.
A bridge money lender expects the borrower to present a clear “exit plan” that specifies how he/she plans to pay off the bridge loan by the end of the loan term. Bridge loans can typically be availed for any duration up to 24 months. Before the end of the loan term, the borrower must either expect to sell off his commercial property or refinance the outstanding loan amount on his hard money bridge loan. Only those borrowers who can demonstrate through their “exit plan” can quickly access the necessary funds.
Hard money lenders base their decisions to approve or disapprove a bridge loan application on many factors, but the most two most important ones are: equity in the collateral property and the borrower’s plan to repay the short-term commercial bridge loan. Depending on the other qualifying parameters, the LTV (Loan to Value) can be as high as 70%.
The interest rates charged on a bridge loan by a hard money commercial lender are high when compared to conventional commercial mortgage rates. The interest rates range anywhere from 8% – 20%. Bridge lender financing is expensive because the risk involved is higher. When a lender determines that the property value is not sufficient for his collateral requirements, they may ask for additional assets; this is also referred to as cross-collateralization.
Though expensive, bridge loans offered by hard money lenders have very flexible terms as they are predominantly asset-based. The lender may require really limited documentation related to income, credit and assets, while also make a lending decision in a week, at most.
Hard money bridge loans are ideal for those situations where financing is needed quickly based on the equity in a commercial property without the need for presenting tons of loan documentation. This sort of financing should only be obtained with a clear strategy for paying off in due time.