Transforming Your Business with a Commercial Bridge Loan
Some businesses are using a certain type of loan to enable them to take advantage of commercial real estate deals rapidly even if they do not have much cash on hand. Lenders call these bridge loans, and they are a financial tool that can help your investing company grow quickly. This type of borrowing is not without risks, but it can help cash-poor businesses secure properties with potential for future profits. The usual problems with obtaining financing for these deals are overcome by loans that financiers have designed to meet short term needs until a property qualifies for a regular mortgage.
Of course, like most solutions to problems, bridge loans can come with their own drawbacks. One problem with this type of borrowing is the higher interest rates it demands. Since lenders consider these types of deals speculative and somewhat risky, they are able to charge higher rates to compensate for the potential of loss. Also, if the property takes longer to upgrade than expected, the fees lenders charge to extend the loan can be rather substantial. It probably cannot be overstated that investors need to have a solid plan for turning a profit before attempting to secure a bridge loan.
Considering the higher risks and fees associated with bridge loans, one may ask why they can be a good idea in the first place. The answer is that this type of loan, as its name implies, can bridge the gap between the time a good property is identified by the investor and when it can be improved enough to qualify for a conventional mortgage. This time period is crucial to give you the leverage you need to possibly turn a substantial profit and quicken the growth of your business. The key is to develop the ability to spot the investments that can be made profitable with the least amount of improvements possible. Minimizing the length of the gap can help you avoid some of the fees and higher interest costs of bridge loans.
Once the money is borrowed, it is then your responsibility to execute a plan to rapidly improve the property. Your plan should be well researched and not reliant on speculation alone. The numbers must add up so that you know the exact moment when the property will qualify for a regular loan. Guessing without the proper information could lead to delays and unplanned expenses. Additional fees and interest could eat up any profit the deal could have earned for you. A bridge loan can be an excellent vehicle to grow your commercial investment business quickly, but you must do the initial work upfront to make sure you have a deal that will make money for you in the end.