Commercial bridge loans are a short term real estate loans which provide short term financing to the property owner for completion of some task. These tasks can be improving the property, selling the property or finding a new tenant. These loans are also called mortgage bridge loans and they are known as short term commercial business loans as well.
These are used for purchasing commercial properties when there is no availability of permanent financing option. As commercial bridge loans are have short term prepayment period of 6 months to 3 years, they do not have prepayment penalty. After being repaid, the property is refinanced or sold with permanent financing.
Commercial bridge loans are basically used when a property requires renovation before it can be qualified for permanent financing. These loans are normally paid off when the owner places permanent financing on property and after the improvements/renovations have been completed.
Commercial bridge loans are the type of commercial lending which is much more expensive than permanent loans. A commercial property borrower could obtain a 6% on permanent loan but for a commercial bridge loan, he may have to pay LIBOR along with 3%-4% in addition of a point or two from a commercial lending fund.
Those who are seeking investment real estate (industrial, residential, commercial) or for business space to operate, commercial bridge loans tend to be quite valuable option. The most common purpose of commercial bridge loans is improvement or purchase of underutilized commercial property. With the help of these commercial business loans, you are enabled to purchase a property in poor condition and perform the needed upgrades and renovations.
Bridge loans are used for refinance or purchase of hotels, office buildings, retail property, and apartment complexes along with multi-family housing as well as for raw land that is to be developed for commercial purposes. This form of commercial lending feature quick closing along with loan amounts that are based on the fully improved value of property rather than the as-is value.
Commercial bridge loans offer capital which is required for a real estate investor to quickly grab on opportunities, get done with the necessary renovations (if required) and either refinance or sell into the permanent financing with affordable payments per month.
Bridge loans are a good option for borrowers when they have opportunity within a certain time limit and want to secure financing quickly. A minimum deal size requires $1 million but there is virtually no maximum for commercial mortgage bridge. The actual amount of loan is basically determined by the mix of value of the property, borrower’s net worth and the cash flow it generates.
While permanent commercial real estate financing lends on the basis of current LTV (loan to value) and providers of commercial bridge loans lend them on basis of LTC or ARV (after repair value). This type of commercial financing enables you to predict the future value of the property.
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