From Debt Into Retirement

The commercial bridging loan is a form of a hard money loan. The term bridging refers to the fact these loans are used for short-term cash-flow issues while a borrower seeks a more permanent resolution to their funding requirements. These loans generally carry a high interest rate. They are used on a temporary basis under the assumption that the borrower will search for and secure less costly long-term financing or will repay when cash flow increases for seasonal businesses.

Commercial bridging loans are usually secured with collateralized real property. Although usage of bridge loan funds is generally unrestricted, the lender is entitled to know what the intended usage is to determine if it will negatively influence repayment capability. For instance, a lender might not approve a loan if it will be used to pay personal gambling debts or some similar non-profit bearing endeavor.

These loans are used for a number of deals. Hard money may be the only way to save a residential or commercial property from foreclosure. For example, say you own two properties. You have the home you grew up in that you inherited free and clear from your parents. You also have a commercial property that was purchased on a 5/1 ARM that recently reset. The higher payments caused you to get behind by 20K. By collateralizing the free and clear residence as security for a commercial bridging loan, you can potentially reinstate your commercial mortgage and refinance at a fixed rate, allowing you to pay off your commercial bridging loan and stabilize your overall financial situation.

As with all hard money loans, it is the value of the collateral or the potential up side of a deal and not your personal credit report that matters the most. The documentation that you must provide to a hard moneylender for this type of loan includes:

• Written appraisal of the real estate offered for collateralization and photos
• Purchase and sale agreement if you do not currently own the property
• Statements relating to your own personal finances
• Proof of borrower income or P&L statement if self-employed
• Twenty four months of Profit and Loss statements if property is an income- producing property
• Two years of federal and state tax returns on the borrower
• A written statement of intent for use of the funds
• If for a purchase, proof of source for the balance of funds to close the deal

Bridging commercial loans are different from conventional financing in that they generally have a lower loan-to-value (LTV) ratio. Where conventional residential and commercial lenders will generally provide a mortgage for 80 to 90 percent of the value of a property, hard moneylenders generally limit their risk by only allowing a 60 to 70 percent loan to value ratio. Their fees and points are higher than traditional lenders, and the interest rates are high. However, the loans are generally interest-payment only loans, and can close in anywhere from three days to two weeks.
The most common properties that use these types of loans are multi-family dwellings, commercial properties, mobile home parks, hotels, and storage unit properties. However, it is not unheard of for these loans to range into the millions of dollars. Many hard moneylenders will not consider a deal for loans less than one million dollars, while others will lend on virtually anything, down to fifty thousand dollars.

Bridge loans can also be used to buy and flip properties. These loans range in period of time from a few months to upwards of three years. Industry average length of the loan is a year. Generally, they do not carry a prepayment penalty but many commercial bridging loans have a six-month interest guarantee, so repayment will not preclude a profit for the lender.