Does your client need to close fast? Are they about to lose the contract on their commercial property? A bridge loan may be the answer.
Did your traditional commercial banking sources turn down your client? Some commercial lenders will stay away from a project because of its speculative nature. Perhaps the property doesn't cash flow or maybe the client has liquidity issues ... whatever the situation, a bridge loan may be the answer.
When used correctly, a bridge loan enables your client to close quickly and take advantage of an opportunity when time is of the essence. It bridges the gap between your client's current situation and a better one.
Adding bridge lending to your range of products can enhance your value to clients. A bridge loan is nothing more than interim financing. Typical terms are from three months to three years. The interest rates can run from 10 percent to 18 percent. Two to four points may be charged. Loan-to-cost/value ratios generally do not exceed 75 percent. Bridge loans are more likely to come from private lenders, individuals and investment pools.
When opportunity knocks, a bridge loan can provide the perfect answer. It is why someone will pay a higher rate and points—to take advantage of the opportunity.
A bridge loan allows your client to keep a piece of property, buy another property, payoff a current lien holder and, most of all, act fast. Most bridge lenders can close a deal in two weeks or less. Most bridge lender clients can go to a traditional bank any day. However, for various reasons—primary among them, speed—they cannot use their bank.
Bridge loans are typically used to close quickly on a property. Here are some examples where speed is the primary factor in getting these loans closed:
•Your client has a property for sale, and it's not
selling. She needs capital quickly to invest in another property.
She is about to lose out on the new property. It's a perfect time
for a bridge loan.
•Another client, a developer, has land he owns, but wants to move quickly on another opportunity. You can give him cash out on his land through a bridge loan.
•A client comes to you because his loan has been in underwriting for months with his current lender. His contract is about to expire and the seller won't extend. You help him out with a bridge loan to carry him for three months until his permanent financing can close.
Bridge lending may also be used in situations where a traditional bank may find the collateral unacceptable. You can close on properties that don't cash flow through bridge lending. Here are some examples:
•Your developer client owns raw land, but needs cash to
purchase another property. The land doesn't cash flow. By allowing
him to cash out on his equity in the land, the bridge loan enables
him to buy another property. In other words, the bridge loan
enables him to take advantage of another opportunity.
•Your new client wants to purchase a gas station. The property doesn't currently generate positive cash flow, but she knows she can make the station successful in the near future. This is another example of opportunity knocking and a bridge loan making the deal work.
Besides speed and collateral issues, income documentation may necessitate a bridge loan. Perhaps your client may not be able to document sufficient income through tax returns.
A bridge loan makes the difference between taking advantage of an opportunity or losing it altogether. Wouldn't you want to be the one helping clients maximize and gain opportunities? Understand the basics of bridge lending, and you can help your client turn opportunities into real deals.
Lisa Kelly is director of sales and marketing for Texas-based Equity Secured Capital, a commercial mortgage lender specializing in bridge loans. She may be reached at (512) 589-5388 or e-mail firstname.lastname@example.org.