H2: Characteristics of Short-term Bridge Loans

Short-term financing: Bridge loans are designed to provide short-term financing, with repayment timelines that range from a few months to a few years. They offer quick access to funds, allowing borrowers to purchase a property or secure funds for improvements.

Quick approval and funding: Bridge loans are known for their faster approval and funding process compared to traditional loans. This speed allows borrowers to take advantage of time-sensitive opportunities or complete necessary renovations promptly.

Higher interest rates: The quick approval process and short repayment period make bridge loans a riskier offering for lenders. Because of this, bridge loans typically come with higher interest rates compared to traditional long-term loans.

Secured by collateral: Commercial real estate bridge loans are secured by the property itself or other valuable collateral. Lenders will assess the value of the property to determine the potential loan value. They may also assess the overall health of the business housed on the property.

Loan-to-value ratio (LTV): Bridge loans typically have a lower loan-to-value (LTV) ratio compared to long-term loans, often ranging from 65% to 80% of the property’s value.

Payment structure: Bridge loans often have balloon payments, meaning the entire loan amount is due at the end of the loan term. However, some lenders may offer interest-only payments during the loan term, followed by the full repayment of principal and remaining interest.

Are Bridge Loans Hard to Get?

The process of getting a commercial real estate bridge loan is like any other short-term loan application. Even with a speedier approval time, due diligence and revenue verification is still a critical part of the process – though the process can vary depending on the loan and the lender.

Before approving a bridge loan, lenders will want to verify that the recipient can pay back its value. They’ll want to know that there’s an exit strategy out of the bridge loan and into a longer-term financing solution. This could include refinancing with long-term financing, selling the property, or obtaining another form of financing.

While bridge loans are expedited, lenders still perform due diligence and underwriting processes to evaluate the borrower’s creditworthiness, property value, and repayment ability. They’ll use these assessments to determine the terms and conditions of the loan based on the market, including interest rates, fees, and other requirements.

It’s important to note that commercial real estate bridge loan terms can vary widely depending on the lender. Finding an experienced commercial real estate lender or financial professional is essential when navigating the loan application process.

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Getting a Short-term Commercial Real Estate Loan

Compared to other loans, short-term commercial real estate loans can be issued very quickly. Depending on the nature of the loan, the entire process of applying, being approved, and receiving funds can take as little as 10-20 business days. That makes short-term loans a great option for commercial real estate owners that need cash fast to refinance properties or purchase commercial real estate.

Even so, navigating this process can be daunting for borrowers pursuing their first loan. While the best advice is always to find a lending partner that’s looking out for your best interests, knowing what to expect and what to look for can help you find a loan that suits your business.

H2: Why Should I Get a Short-term Commercial Real Estate Loan?

Short-term loans can help you bridge the gap between transitional phases in your business or the general markets. They can be especially useful in purchasing commercial real estate. Short-term bridge loans allow you to borrow against the value of an already-owned property.

The terms of short-term loans can vary widely. They do have some common characteristics, however, that are worth keeping in mind as you explore next steps.

1. They have shorter maturities, often requiring repayment within 1-3 years.
2. Short-term loans carry higher interest rates.
3. The application and approval process is often very fast compared to other loan types.

This is what makes short-term loans helpful when your business needs immediate funds to purchase commercial real estate. They allow you to move quickly on new opportunities. Short-term loans are a great way for growing and established businesses alike to expand without too much risk. As with any debt, it’s important to make sure before applying that you have a plan for a long-term or conventional loan to refinance the bridge loan before the maturity date.

Applying for a Short-term Commercial Real Estate Loan

While the process can vary, here are some basic steps to expect as part of your application process.

Finding a Lender

There are hundreds of loan providers to choose from, each with their own distinct loan products. It’s worth taking the time to evaluate your options carefully.

A reputable, service-focused lender will help break down how interest rates and repayment time will affect your estimated payments. This makes it much easier to find the right loan for you. If your lender isn’t offering much transparency in this regard, consider shopping around for other options.

Applying

After submitting your application, each lender will use various criteria to assess your commercial real estate loan:

• Type of commercial real estate
• Location and size of market
• Value of the property
• Loan to the value of the property
• Net operating income of the property
• Borrower experience
• Borrower net worth
• And other factors

Lenders will use this information to determine the level of risk if they make a loan to the commercial real estate owner.

Receive and Use Your Loan

Shortly after your loan is approved, the lender will underwrite the loan and engage third-party groups to further analyze the loan, including: third-party appraisals, third-party property condition assessments, third-party phase I environmental assessments, title reports, and other underwriting needs. Once underwriting is completed, a closing date will be scheduled and your business will make regular payments in line with the loan’s terms until the loan is refinanced or the property is sold.

Looking for a short-term loan from a respected partner that puts customer service first? Learn more about Korea Capital Management’s short-term loan terms or contact us with questions.

The post How to Get a Short-term Commercial Real Estate Loan appeared first on Korea Capital Management.

The reason they’re considered “riskier” for lenders is because, while they do sometimes involve a credit history check, the loan is not contingent on the borrower’s credit. Hard money loans use an asset owned by the borrower, typically real estate, as collateral to borrow against. That makes the loan approval process for hard money loans much faster than other short-term loan options. It also means that lenders have less assurance that the loan will be paid back according to the terms.

While terms of hard money loans are often negotiable, they do carry some risk for the borrower, as well. Some key things to keep in mind regarding hard money loans are:

• Most have short repayment times (1-3 years, typically)
• Can be approved very quickly
• Interest rates are higher on hard money loans
• Aren’t tied to banks or borrower credit, only the value of the collateral asset (often real estate)
• They carry a lower loan-to-value ratio, so borrowers don’t receive as large a percentage of their collateral asset’s worth in loans and will owe a larger down payment
• Are not issued by banks, but by individuals and some lending organizations

How to get a hard money loan

The process of securing a hard money loan is similar to applications for any other loan.

1. Save the funds for a down payment, which will likely be somewhere in the range of 30-50% of the asset’s value, and any fees associated with the loan
2. Prove that you have those funds available
3. Find a reputable lender with terms that suit your circumstances
4. Apply for the loan and be approved

Hard money loan example

Property flipping, purchasing a house to increase its value with renovations and re-sell, is one of the most common uses of hard money loans. They’re issued quickly and based on the value of the property they’re purchasing, which can give them an edge when bidding for that property. Those funds can also help build funds for quick repairs, so they can cover the cost of renovations with the loan.

Some hard money lenders will issue loans based on the anticipated value of the property once it’s re-sold. This still involves some risk for the borrower, however. If the home sells for a lower value than anticipated, they may not have the funds required to repay the loan in time.

Hard money loans can be useful for quick infusions of cash that aren’t dependent on credit. As with any loan, it’s important to know the terms inside-and-out and have a plan for paying back the loan’s value. This sort of planning will help you find the loan that’s right for you.

The post What is a Hard Money Loan? appeared first on Korea Capital Management.

How does a bridge loan work?

Bridge loans are short-term loans tied to the collateral offered by the loan recipient, often property or another business asset with determinable value. The loan amount will be a percent (%) of the asset’s value.

Most bridge loans offer a 6-24-month period before recipients must repay the loan. This makes them useful during periods of transition.

When should I pursue a bridge loan?

Bridge loans aren’t suitable for every business. They may be the right fit if you:

• Need to refinance an existing commercial real estate property with an expedited loan process
• Need a loan that can be approved and issued quickly – 10-20 business days if you’re working with Korea Capital
• Feel comfortable with relatively high-interest rates compared to other loans
• Have a clear exit strategy identifying a path to refinance the loan at the end of the 6-24-month term

If you’re interested in requesting a short-term bridge loan or want to discuss your options with one of our financial experts, contact us today.

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