When a Short Term Bridge Loan is Right for your CRE Business
There are a variety of occasions when a private bridge loan is the best solution for a commercial real estate owner. A private bridge lender can provider tailored solutions with rapid execution that traditional banks cannot offer. Structured financing is advantageous in situations in which the collateral or sponsor doesn’t fit the traditional box of a conventional lender. Below we’ll cover the various benefits of a bridge loan as it relates to a business owner’s growth strategy.
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1. You need fast underwriting.
Time is money – a bridge loan can enable a real estate investor to maximize their investment return. A bridge loan can be closed in a matter of weeks due to the streamlined underwriting process and the lack of regulatory constraints. The underwriting process of private lenders prioritizes the value of the collateral, not the historical cash flow of the property or the credit score of the borrower.
Often, in connection with the sale of a CRE property, discounts are offered by the seller for a quick close. Purchasers who have to wait for the underwriting process of a conventional loan may lose the benefit of a quick close purchase discount. On the other hand, private bridge loans close quickly, enabling investors to capitalize on this discount.
2. Yours is a value-add deal.
A common real estate investment strategy is to invest in value-add project; in other words, projects that are not yet “stabilized”, where investment in renovation and/or repositioning are required. Investors in these projects invest with the plan to stabilize the property, increase its net operating income, and ultimately capitalize in the higher value of the asset.
Many conventional lenders won’t finance properties that aren’t stabilized, since un-stabilized assets won’t achieve the necessary debt service coverage ratio or debt yield for a conventional, long-term loan. The private bridge loan provides the borrower with the time needed to stabilize the asset, after which they can obtain traditional financing.
3. You have a seasonal business.
A similar situation occurs when an asset needs time for seasoning to meet the performance hurdles for a conventional refinance. For example, a conventional lender might want to see that the asset has been achieving sufficient cash flows for some period of time prior to refinance. A private bridge loan enables the borrower the necessary amount of time to prepare the asset for a conventional refinance.
4. You have poor credit.
Short term bridge loans are excellent solutions for sponsors with credit scores that do not meet the thresholds of a conventional lender. While a bank or agency lender might not approve a loan application for this reason, a bridge lender would. This is due to the fact that the bridge lender’s underwriting process leans heavily on the value of the asset. Furthermore, bridge lenders offer structured products that are non-recourse in nature.
All-in-all, a short-term bridge loan is a valuable financing option in a range of situations. The bridge loan aids the real estate investor in the execution of even the most precarious situations.