What Is A Commercial Property Bridge Loan?
Commercial property bridge loans are a short-term loan used in the real estate industry by flippers, developers and property investors that gives the property owner enough time to finish the remaining tasks.
These tasks involve improving the property, finding a new tenant, or selling the property.
It’s called a bridge loan because it closes the gap between where you are right now and where you want to go, like a bridge.
What Are The Requirements For A Commercial Bridge Loan?
Banks usually look at the last three years of financials to see if there is proper cash-flow and collateral needed to fulfill their lending requirements on your project. When the financials are not currently sufficient or have not been sufficient for a long enough time period, they will usually turn you down.
So, what is your next option, you guessed it, a bridge loan from a hedge fund or private investor.
|Experience||Prior success in real estate, but we also have programs for starters in real estate|
|Cash Reserves||Usually 3-6 month interest reserve|
|Documentation||Credit Report, Background Check, schedules of leases (if applicable), executive summary, and renovation costs|
Commercial Property Bridge Loan: Terms, Rates & Fees
Commercial property bridge loans are usually paid off when the owner places permanent financing on the property, after the improvements are completed, or when the new tenants move in.
The typical commercial property bridge loan is interest-only and has a term of six months to three years. It’s intended to be a short-term solution, because the investor or business owner can then secure long-term financing once the project is sufficiently cash-flowing.
Because these loans are short-term, most bridge loans have no prepayment penalty after 4 months.
|Loan Amounts||$150K – $40 Million (or higher)|
|Loan Terms||6 Months – 3 Years|
|Loan-To-Value||Up to 80%|
|Interest Rates||6 Month LIBOR + spread of 4.5 – 5.5|
|Origination Fee||1% – 6%|
|Closing Cost||Origination Fee + Small Underwriting Fee|
|Prepayment Penalty||N/A or several months interest|
|Turn-Around Time||2 weeks – 5 weeks|
Finding the Right Bridge Lender When The Bank Says No
If you’re in the process of flipping a property as an investment, a commercial bridge loan may be your best option. Especially when the bank says no.
A bridge loan is meant for people looking to sell a rehabbed property for a profit, or renovate a property for rental income and then refinance using long-term financing.
So, if you are an investor or business owner looking for financing on an upcoming project, but need an alternative source other than a bank, give us a try.
ALC has built relationships with 50+ Commercial Lenders and utilize Over 100 Different Loan & Financing Programs. Even if you don’t need us for your current project, please keep us in mind for any future business-related loans.
Our team is ready to creatively look at your situation and come up with a solution that can take your business or investment to the next level, faster. Our 25+ years of advanced underwriting experience can get you what you need with quick approval turnaround times!
Some Bridge Loan Case Studies From ICA
1. First-Time Multi-Family Investor
Not bad for a first-time Multi-Family Investor! This borrower previously only flipped single-family homes but saw a great opportunity in a 14-unit building.
He wanted to convert the 1-bedroom units to 2 beds and the 2 bed units to 3 bedrooms.
All the apartments will be completely renovated with new kitchens, bathrooms, floors, electric, etc. This will be a cash-flow cow for him when all is said and done.
ICA was able to procure 70% of the purchase price and an additional $280K for the rehab!
2. Purchasing the Business He Managed
Our client wanted to purchase a convenience store he managed for a long time from the current owner for $80,000. This needed to be done within 30-days, because the current owner of the store had a friend of the family who was ready to pull the trigger if he couldn’t get the funding.
It turns out he had a commercial property that he had just purchased about 9 months earlier that he was almost finished being renovated. The property was worth about $200,000 in its current condition and he only owed about $50K left that loan.
We were able to secure him $130,000 so we could pay off the current lender at $50K and had $80K leftover to then purchase the convenience store he use to manage.
3. A Tapped-Out Developer
A developer client of ours wanted to take advantage of a major opportunity on two commercial properties.
The only problem was that he currently had a $1-million construction project he was working on and the banks just didn’t feel comfortable extending him any more credit. Plus, these two properties were only about 40% occupied so they didn’t currently cash-flow well.
The acquisition cost for the properties was $625K and they needed another $100K in rehab work to get them to a point where they could fully occupy it.
We were able to secure him $469,000 of the purchase price and another $75,000 for the rehab work.
When he was done with the rehab about 6-months later he already had renters lined up and was able to refinance through the bank.