Bridge loans are an interesting form of financing. They are not intended for any particular purpose – like a mortgage or auto loan – but they are designed to be short term in nature. Borrowers can utilize them for just about anything. For example, did you know that a bridge loan could help you get more for a property you are trying to sell?
Understand that a bridge loan is designed to meet immediate financial needs when there is a future form of funding already in play. Back in the late 1990s and early 2000s, bridge loans were fairly common in residential real estate. Homeowners looking to purchase one home while also selling another would use bridge funding to get to closing on time. When they eventually sold the first house, the proceeds would pay off the bridge loan and initiate a traditional mortgage on the new house.
Commercial bridge loans, while not exactly the same, work in similar ways. Borrowers use the fast cash from bridge loans to meet immediate needs. Meanwhile, there is already a plan in motion to leverage future sources of income to repay the lender.
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Getting More for a Property
With all the preliminaries out of the way, it is time to talk about the idea of using a bridge loan to get more for a property you are trying to sell. Salt Lake City’s Actium Lending speaks about this very scenario on their website. Actium offers bridge and hard money loans in Utah, Colorado, and Idaho.
Their example speaks of a real estate owner looking to sell a valuable piece of property. He hasn’t gotten the kinds of offers he’s been hoping for, but he believes time will take care of that. With a few more months and some effective marketing, he believes he can get offers more in line with his expectations. In the meantime, he has some immediate financial needs he was hoping to fund through the sale of the property.
Approaching Actium Lending for a bridge loan essentially buys him time. The loan can meet his immediate needs. In the meantime, he can get to work marketing the property in such a way as to boost future offers. He ultimately gets what he is asking, pays Actium Lending, and walks away with a nice return.
There Are No Guarantees
Obviously, there are no guarantees in a scenario of this sort. The borrower could just as easily spend months marketing his property and never get the kinds of offers he was hoping for. He would have had to take less and still need to repay Actium Lending. But Actium did its due diligence. They believed the property was worth every penny the borrower was asking for.
The main thing to remember is that the property had value. That’s what private lenders look for. Private lending is asset-based, meaning the value of the asset offered as collateral is largely responsible for driving loan approval as well as rates, terms, and LTV.
As for the client, obtaining a traditional loan would not have been possible. Traditional lending takes too long; he had more immediate financial needs that could only be funded by private lenders. So in the end, it all worked out for him.
It Might Be an Option for You
If you are looking to sell a piece of commercial property but you want more time, a bridge loan might be an option for raising cash in the interim. Think about it. If bridge financing is right for you, there is no shortage of private lenders to choose from.
