When most people hear about bridge loans, they are typically talking about residential properties and helping homeowners transition from a home they are selling to a new one. While commercial bridge loans serve a similar purpose, they can also be used to free up capital to help businesses grow. Because of the way these bridge loans operate, they fall under the same category as hard money lending and are typically used for the short term. In fact, most of them last no more than six months. When used properly, these commercial bridge loans can be the ideal option.
The Right Situations
There are certain situations where commercial bridge loans can be extremely beneficial. These include:
- Balloon payments are coming up and business owners have not yet made more permanent financing plans.
- You find property you would like to buy that will likely sell fast, not allowing you to secure traditional financing in time..
- Temporary financing is needed for improving on a business or to restore a damaged property before securing permanent financing.
- Additional cash flow is needed for property costs while finding new tenants, preparing to sell or refinancing.
What You Should Know About Commercial Bridge Loans
Most private financing, including commercial bridge loans, come with higher interest rates because they are meant to be used over a shorter period of time and typically come with a higher level of risk. However, when you look at the benefits of these types of loans versus the cons, you will quickly realize these loans often have a much higher number of benefits. In fact, they can even increase the profits.
For most businesses that obtain a commercial bridge loan, the end goal is to provide temporary financing until more permanent options can be secured at the right price. Because these solutions are typically short-term and are meant to be paid off over a relatively short period of time, there are typically no prepayment penalties to worry about. If you are able to repay the loan before the terms require, you will simply be freed of the loan and able to move on without worrying about paying more in the process.
It’s important for companies to establish the right networking relationships to ensure they can get access to the resources they require. It’s important to find private money lenders who are able to assist with issues like commercial bridge loans that can bypass the more traditional methods of obtaining financing for business purposes. You never know you when you may be in a situation where you need money more quickly than traditional lending can provide it, putting you in a difficult position that could cost you important business progress.