The bridge loan is an excellent alternative for those in need of quick cash for real estate renovations. Most bank loans take weeks – and sometimes even months – to finally receive once the paperwork is turned in. And that doesn’t even account for requested revisions or additions from the financial institution. Commercial bridge loans are well-known for their very fast turnaround times. They are also a great way to shore up your cash flow during the waiting period for a much more robust traditional bank loan.
The Bridge Loan: A Stop-Gap
The purpose of a bridge loan is not to fund big real estate acquisitions. Since the requirements to obtain one are laxer than the usual funding options – this is what makes the turnaround time relatively quick, after all. With that said, bridge loans can sometimes be used to help purchase real estate that may not be on the market for very long. The strategy here is to first apply for the low-cost, long-term loan, and then get the bridge loan to supply the downpayment while you wait for the weeks necessary for the big money to come through.
Most real estate investors pursue the bridge loan to help with renovations, which makes this funding option optimal for house-flippers. You don’t want to use the bridge loan for much more than this, since the interest rates are high due to the short loan terms.
The Application Process for Bridge Loans
It’s simple: compare providers and pick the best one. Once you complete the application and submit it, you could have your money within days. The most important factor regarded by the lender is the LTC – the loan-to-cost. It represents how much money the lender provides, vs. how much you provide. For example, an LTC of 80% for a bridge loan of $100,000 entails that you are responsible for $20,000, whereas the lender will provide the other $80,000.
Bridge loans are big business and serve a purpose not too many other loans can manage. If you’re in real estate and need more information and advice, contact us at Lode Capital.