Exploring the various types of financing options available is probably one of the most basic things anybody who’s entering commercial real estate business will do.
With a plethora of loan options available in the market, it is quintessential to understand what loans make the best sense for any given situation.
This is also true because the challenge is not finding the best loans at the best rates but to find the right kind of loans to suit one’s financing needs.
Making less informed decisions will only waste time and energies. This blog is an overview of commercial Bridge loans and their most widely applied uses.
By the end of this blog, you will get an idea about what are commercial Bridge loans and the scenarios where it makes perfect sense for you to avail such commercial bridge loans. Without any further ado, let’s dive right in.
What are Commercial Bridge Loans?
Commercial Bridge Loans are a form of short term financing that is funded very quickly and are taken to fund immediate financing need until an exit strategy like a refinance or sale is executed.
These loans are typically quick-to-fund loans and are the best go-to option for deals that are pressing on time and are intended to be paid off quickly, either by a refinance or by the sale proceeds of a property or the outcome of the purpose for which it was taken in the first place.
Put it simply, commercial Bridge loans bridge the gap between present financial circumstances and the future financial circumstances, once the loan is put to good use.
If you are not able to wrap your head around this concept, here’s the most classic example to understanding what commercial bridge loans really are.
Let’s say, you found a great deal on a real estate residential property and you can’t wait to buy it. This property, however, is not suitable to turn into an income generating asset for you, unless some repairs and renovations are made to the property.
If on analyzing the local markets and the tenant demand rates, if you feel that you can earn a good income from renting out this residential property after making certain repairs and renovations, but you lack the funds needed to do it – commercial real estate bridge loans are your best chance!
You can avail these loans very quickly and get on with the repairs and renovations of your newly bought house, bring in some potential tenants and pay off the existing commercial bridge loan with the rental income you will now be earning.
This is the most common and classic example for understanding what bridge loans are and their basic nature.
Also read – Risk & Rewards of Bridge Loans
Here are some other common use-cases where availing commercial real estate bridge loans is the best option for you.
Number 1 – Investing in a timely and stellar commercial real estate deal
As a real estate investor, there will be many times where you will stumble upon an irresistible deal where you’ll be getting the highest value for your investment.
The sad part about such kind of deals is that they are very timely and there is a lot of competition between the many savvy commercial real estate investors, fighting to secure that big deal.
This scenario makes it an ideal use-case of commercial real estate bridge loan where you can finance the loan in no time and get the leverage of time.
For instance, let’s say a storefront in one of the most crowded places and a prime marketplace of your city is up for sale.
Now, instead of waiting for a long period of time until you find a suitable traditional loan and losing out on this stellar deal, applying for a commercial real estate bridge loan is a great idea.
With commercial real estate bridge loan, you can arrange for the funds very soon and swoop in onto that deal and make that purchase immediately.
Once you’ve got your hands on the property, you can then apply for a long term loan, which usually takes a good deal of time to find, to apply for and to be approved to pay off your existing commercial bridge loan.
This use-case is one of the most common uses among the real estate investors because in real estate investing, purchase of commercial properties is so time-sensitive and the master players in the game of real estate investing are those who make the most use of commercial Bridge loans to get their hands on the hottest deals, before anybody else and in turn make a fortune of money.
With plenty of commercial real estate bridge loan lenders in the market, it is not very hard at all to find the right one for you and up your ante at the commercial real estate investing game.
Number 2 – Investing in fix-and-flip properties
Of the many kinds of savvy commercial real estate investors, the ones that are into dealing with fix-and-flip properties often turn towards commercial bridge loans.
Fix-and-flip deals are basically real estate deals that involve purchasing of under-developed or almost-completed properties, making additions/repairs and renovations to the properties and selling them off at higher prices.
There are many real estate investors who are extremely successful and have really made it big in the industry by doing just that.
They are always on a lookout for properties that have the potential of either becoming an income generating asset or a building with high sales value, once they’re polished a little with small or big repairs, renovations, interior designing, etc.
In such cases, it does not make sense to find long term loans with huge loan repayment liabilities that need to be taken off for years to come.
That is exactly where commercial real estate bridge loans come into the picture.
Bridge loans can be easily financed and the proceeds can be used to make this real estate property ready-to-sell-at-a-higher-price.
And once the sale is executed, all the loan liabilities towards this commercial bridge loan can be paid off once and for all, without having to bother about carrying it forward for the many years to come.
Number 3 – To afford the immediate working capital needs of a business when a big pay-off is on its way
Some businesses get stuck because of a lack of working capital that’s needed to run the day-to-day operations of the business and keep the business afloat.
In such cases, businesses either consider shutting off their operations for a while (which in most cases will not be in the best interests of the business) or keep it going until a big deal comes there way. The latter is more likely to occur in most businesses as a business owner can see a big deal coming-their-way and they do not wish to shut their operations off.
But at the same a lack of funds needed to run the business forces them to look into various business loan options and commercial bridge loans is one of the best options there is which will be the perfect fit for the situations.
Availing a bridge loans takes so little time and it serves the timely purpose of pooling in some finance to suit the immediate financial needs of the business.
The proceeds of the loan can be used to keep the business afloat until that-big-deal finally comes after which, the bridge Loan can be paid off.
Number 4 – Purchasing non-perishable inventory in bulk at discounted prices
Whatever business you are dealing in, you will need a set list of inventory that you’d like to stack up in your warehouse.
Many a time, it so happens that your raw material dealer is liquidating his inventory and giving away a bulk inventory at discounted prices. Such are the times when you want to jump in and make that purchase before your competitors will.
And as you may have guessed, purchasing inventory in bulk will need – A lot of cash. And, really quick. So, what is the best option for a business owner? – Yes! Commercial Bridge loans.
Commercial Bridge loans are often the best option for borrowers who want to see some stellar business or real estate investment opportunities that are super time-sensitive.
In this case, using a commercial Bridge loan to seize this opportunity of buying bulk inventories at unbelievably discounted prices is not only the best option but also very timely.
Once the purchase of inventory is made, you can slowly lay back and find a long term loan which is less expensive to use it to pay off your existing commercial bridge loan.
So, that was the 4 most widely used use-cases of commercial real estate bridge loans. In a nutshell, the beauty of bridge loans is that they act as that friend who provides timely help when it’s most needed, of course at a price of expensive rates of interest but they serve a bigger purpose at the moment!Research well to find the best commercial real estate bridge loan lenders and make a rather informed decision before finalizing on your lender because whom you choose to lend your money from matters a great deal in the long run, if not immediately. And if you are particularly looking for bridge commercial real estate Houston, we suggest you reach out to us as we’ve been in this industry for many years and we have the best deals for you. Talk to one of our real estate experts today and we’d be glad to assist you.