Things You Need Know About Bridge Loans

This type of business financing is very aptly described by its name, Bridge loans or Bridging loans. This type loan is not a permanent or even long term loan. It is exactly as stated, a bridge between now and when the long term financing is in place. In general, bridge loans are taken out for a maximum of 3 years awaiting long-term or larger financing. The loan’s purpose is only to cover the interim period until the more permanent financing can be arranged. Once the new financing is obtained, the money will be used to pay back the bridge loan.

Bridge loans have a higher interest rate than conventional loans. It is not uncommon for lenders to require cross-collateralization in addition to designating a low loan-to-value ratio in order to lower their risk. However, bridge loans are able to be arranged quickly and do not require a massive stack of paperwork.

Bridge loans are frequently used in real estate purchases to quickly close on property, take advantage of a short-term opportunity, or retrieve an estate from foreclosure. When the property is sold or refinanced, the loan is typically paid back.

Bridge loans are similar to hard money loans as both are not traditional and obtained for unusual circumstances or emergencies. The major difference is that hard money refers to the source whether an individual, private company, or investment company. Bridge loan references the duration of the loan.

The interest rate of a bridge loan is generally 12-15% for a maximum of 3 years. For commercial properties, the Loan-to-Value ratio does not exceed 65% and 80% for residential properties. Loans can be issued on a closed or open timeframe for payoff.

Banks do not typically offer real estate bridge loans because of the high risk and lack of documentation which does not meet the industry’s lending criteria. A bank would have difficulties justifying its lending practice to government regulators and investors if it issued bridge loans. Therefore, most bridge loans are generated from individuals, businesses, and investment pools.

Bridge loans are used in corporate finance and venture capital as well. They can infuse small amounts of cash to carry a company through consecutive major private equity financings. In addition, they can assist a distressed company while search of an acquirer or larger investor. If a company is being sold, a bridge loan can finance final debt before it is publicly offered.

Lone Oak Fund is a private mortgage fund larger than many banks that makes bridge loans typically ranging from $500K to $12.5M on commercial and residential properties located throughout Southern and Northern California. Founded and managed by experienced real estate developers, Lone Oak Fund is the preferred lender for professionals seeking fast, reliable bridge financing for their clients, while providing an additional profit center.Since its inception in 2002, Lone Oak Fund has become one of the largest and fastest growing private bridge lenders in California. The fund is supported by the financial strength of its 400 plus members, including high-net-worth individuals, institutions, and pension funds, with over a billion dollars in loans funded.

Things to Know Before Applying the Commercial Loan

A commercial mortgage is often a brief phrase loan used by a tiny enterprise to tide over a short- period financial requirements like meeting the monthly price of payroll, meeting the price of raw materials if of massive demand for the items of the enterprise or for increasing the small business.

You should have been exposed to the various commercial loans you see on advertisements and on bank pamphlet; one thing you are not sure of is that you could find the right loan for you and your business’s prospects. Despite of the many offers of loans, there are some key things you should know and understand in great detail for before signing the papers for your much needed business capital. There are also professions such as closing agents and brokers to provide the information about commercial loan and that you should take advice from them.

First and foremost you have to be honest and make a clean breast of your current financial statement; that says you have to provide the genuine information of your personal income and expenses. It is not worth the risk to appear nice and easy until the lender goes through your many hidden financial crisis, debts or business failures. Also, you have to assure that the documentation of your financial status is the most up to date. The lenders and underwriters would meticulously go through your loan application until they are satisfied with the prospect of profitability. If both parties have a mutual agreement the loan is likely to be approved.

It is also important for yourself to know your bits and pieces before applying the commercial loan. Knowing your credit ratings from the available credit bureaus would get you prepared for the decision of loan approval or rejection. You would also need to understand your own business operation, plans and goals so that you could convince these lenders that your business does work and succeed. On the other hand, you might also want to check your lenders’ profile and goals. You have to make certain that you have fully read the terms and conditions and have understood before jumping the gun. Lower rates might seem appealing but you should be cautious of the limitations and regulation of how the lenders’ region works.