Have you spent much of your time lately wondering how you are ever going to survive the current credit crisis? It must seem odd to you that in the midst of times when new business strategies are the only way to make money and survive, you can't get financing to help your business grow.
Many companies are in the same position as you are, and they looking for alternate forms of financing while they try and wrestle a conventional loan from a financial institution. For you, and the other multitude of companies out there, there is hope. It is called a commercial bridge loan, and it is designed to "bridge" the gap in your financing until you can get a more conventional loan/financing.
1) What is a commercial bridge loan?Very simply put, a commercial bridge loan is a short-term loan that a company obtains to facilitate the financing of a property. It is a kind of financing that the borrower uses when they are expecting to sell a property quickly or refinancing within the near future.
2) Why should I get a bridge loan?
A company should get a commercial bridge loan if there is a need to finance a property while they are looking for long-term financing.
For example, let's say that Sally's Food (all names are purely fictional) has been in business for several years, and Bob, the owner, would like to expand by moving to a new location. He has been leasing the building for his current store, but he would like to purchase his next location to allow more freedom to make changes to the store.
Bob starts looking around, and in just two weeks, finds the perfect location for his new store. The owner says that he has several people looking at the land, so if Bob wants it, he going to have to move fast. Since he has only been looking for just a couple of weeks, he doesn't have any long-term financing set-up for a purchase yet, and because the property is more than Bob was expecting to spend, he needs a little more for a down payment.
Bob is in a great situation for a commercial bridge loan. The loan will give him time to find the best option for his long-term financing while allowing him to put a down payment on the property immediately.
3) When should I not get a bridge loan?
Like any kind of investment, a commercial bridge loan has some pretty large risks while also having great potential rewards. Typically, it is backed by banks or financial institutions, but because of the higher risk, the interest rates can be higher. Most range between 10% - 15% for a typical loan with a term from 2 weeks up to 3 years.
A company should look for other financing if they:Can find long-term financing quickly Cannot take the risk that they will be unable to find long-term financing Cannot pay for the extra cost of interest on the loan
While there are some risks in a commercial bridge loan, for the most part,they are a good way to guarantee the ability to purchase a much need property.
4) What is the difference between a commercial bridge loan and a hard money loan?
Both bridge loans and hard money loans use the property as collateral, but a primary difference is that hard money loans are made by private investors. This means that most of the time a hard money loan has a much higher interest rate than a bridge loan, also hard money loans are used in a lot of cases where the company might be in financial problems.
5) Which kind of bank/brokerage offers the best kinds of bridge loans?
When looking for an institution to finance your commercial bridge loan, it is best to go with one that can directly finance your loan. Typically, institutions that can directly finance your loan will give better rates because there is no middle man to pay. Also, private investors might be easier to work with, but the cost tends to be much higher with a private investor.
Whether you are a struggling business trying to survive the current crisis, or a company that needs to expand to meet your client's needs, a commercial bridge loan can help you reach your goals. Just remember that once you get a loan, your battle isn't over. You still need to obtain more traditional financing, but a commercial bridge loan can get you through the "rough" patches that all of us are currently facing.
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