How Bridge Financing Works
Bridge Loan Financing For Real Estate Investors
The internet is filled with tons of information regarding traditional bank loans, but few are talking about the modern strategy of using bridge financing as it pertains to real estate investment. In light of that, we at Fulford Lending would like to share some insight into the topic.
Hard money lenders like us offer bridge loan financing. Bridge loan financing helps to fill the gap when borrowers are in need of additional funding for their residential and commercial investments. This allows a borrower to finish up an existing project, while working on purchasing the next project, removing costly gaps between opportunities and projects.
Private Lender Vs. Traditional Bank
Traditional banking lenders evaluate borrowers based on regulation, cash flows and risk. If a borrower does not meet the requirements of each category, then a bank will not be comfortable providing a loan. If the borrower does meet all of the requirements the time consuming nature of the process could render the process pointless to begin with. Bridge financing also allows real estate investors to act quickly on a solid investment once it comes on the market then refinance to a bank for cheaper long term rates when expediency is less of an issue. Traditional banks can take between 30 to 60 days to close a non-complicated, basic loan. Bridge financing from a hard money lender allows investors to close within days, helping secure properties at better prices during the negotiations. Particularly in a sellers market, long closings can be subject to difficulties.
Most hard money loans such as Bridge (also at times called gap loans) typically have terms ranging from six months to three years (our terms range from 1-5 years), which gives the borrower ample time to obtain more conventional financing. These types of loans are excellent for commercial developers and real estate investors.
When Would Someone Need A Bridge Loan?
- A property has taken longer than expected to finish but now is sitting on the market and the investor needs relief from monthly interest payments.
- A property is near completion but has exhausted the construction budget from the HML. Investor needs some additional funding to get the job done and listed quickly.
- A deal is expected to be completed quickly and the investor is trying to minimize their out of pocket expense, and max out their cash on cash yield.
- An investor has enough cash in the bank to do the deal themselves but would rather keep their reserves liquid in case another opportunity/deal comes along and needs to react quickly.