| What is a "bridge loan?" Certainly, it is | | | | if the property market conditions are good, |
| not a loan for buying a bridge. It gets its | | | | you can get out from under a bridging loan |
| name from a frequently used type of financial | | | | quickly. . However, you must realize that a |
| strategy. Properly used, it can be a decided | | | | bridge loan has serious risks. It is still |
| help in achieving financial goals. | | | | something that will need to make sense for |
| Improperly used, it can be a financial | | | | your business. |
| disaster. | | | | |
| | | | If you feel taking on this type of loan is |
| By definition, a "bridge loan" is a | | | | the right thing to do, you will be far better |
| short-term loan used to purchase commercial | | | | off going through a specialist commercial |
| property. This is something that can come in | | | | lender. This lending institution will shorten |
| very handy, depending on the particular | | | | the entire process. A lending specialist |
| situation. There are two main points that you | | | | will know the market and he/she can quickly |
| need to consider before you opt for a bridge | | | | make a judgment on the best loan for you, |
| loan. One is your needs and the other is the | | | | based on your particular circumstances. It |
| state of the property market. | | | | would do you no good at all if you have |
| | | | worked out a bridge loan package only to find |
| One of the major benefits of bridge loans is | | | | out the loan underwriters have rejected the |
| that it will allow you to purchase a new | | | | application. |
| property before you have sold your existing | | | | |
| one. You will need to evaluate your current | | | | Be sure to check that the loan can be |
| situation to determine if your needs justify | | | | converted into a conventional commercial |
| taking on this type of finance. Some major | | | | finance package. You will also want to check |
| questions you must field in your evaluation | | | | on the type of interest rate and the costs |
| are: | | | | you will entail if you do have to convert. |
| | | | |
| Will you lose the new property if you can't | | | | Most commercial lenders will be willing to |
| offer a deposit? | | | | extend the terms of your bridging finance |
| | | | package. If you have a buyer and you are |
| Would you be eligible for a discount on the | | | | waiting for the sale to close, a bridge loan |
| purchase price if you can come up with the | | | | is much more flexible and accommodating than |
| cash fast? | | | | you might expect. |
| | | | |
| What are the existing market conditions in | | | | Repaying your bridge loan at the end of the |
| regard to the sale of your existing property? | | | | loan term more often than not depends on your |
| | | | ability to sell your existing property. If |
| Would it be possible to sell your existing | | | | your property does not sell in the required |
| property in the time frame set out in your | | | | time frame, you will be paying the existing |
| finance package? | | | | loan on your current property, your new |
| | | | property and the newly converted bridge loan |
| Most bridge loans typically run for one year | | | | as well. |
| and will need to be paid in full at the end | | | | |
| of the term unless it is possible to convert | | | | If you believe this may be a possibility, be |
| it into a commercial loan. Also, interest | | | | sure to take a package that can be converted |
| rates will be higher on a bridging finance | | | | to a commercial loan if the need arises. |
| package. | | | | Otherwise, you may have to come up with the |
| | | | full loan sum at the end of the finance term. |
| If you do not have an urgent need for the new | | | | As I cited earlier, bridge loans can be a |
| property and the market is slow, it may not | | | | decided help for your business, but there are |
| be in the best interest of your business to | | | | risks. Let the borrower beware ! |
| take on this type of loan. On the other hand | | | | |