Residential constructional loans & Commercial Bridging loans are a different breed of financing in which the length of the loan is relatively short term as compared to traditional loans for property financing which are usually spread over a
period of 15 to 30 years. In many cases, “house flippers,” or real estate moguls who buy a property, fix it up and sell it for a profit, use these types of loans. These moguls do not intend to hold onto the property they are financing for more than a one and a half to two year period, which is also the usual length of a bridge loan.
Bridging Benefits
Some of the benefits of a bridge loan for commercial buyers include the ability to finance real estate for a minimum amount of time and quickly sell or refinance the loan. In addition, the underwriting requirements are more flexible than with a traditional loan and interest rates are generally cheaper as well. In some cases, those who have been turned down for other types of funding, such as a private investor who thinks a cash loan would be too risky, turn to bridge loans as an alternative source of financing.
Private investors have many unrealistic requirements in order to secure a loan with them, not to mention their interest rates, which can sometimes turn into a good portion of the profit made from selling the property. This makes Commercial bridge loans a great alternative because any profit the financier makes, he keeps.
Bridging Finance Types
Two types of bridge financing are available and they include Open bridging finance and closed bridging finance. Open bridging financing gives the person securing the loan the option to leave the repayment term flexible, as well as they type of repayment that must be used.
However, the disadvantage to this type of bridging financing is that it is a much higher risk loan, because there is no definite secured with exception to the minimum repayment time allowed. In addition, there are usually extra fees attached, making this type of bridging financing very expensive as compared to close bridging loans.
On the other hand, closed bridging loans have a definite repayment date, in which the amount must be paid in full. This type of bridging financing is not as risky as open bridging financing and therefore is less expensive. This type of loan also has its disadvantages because of the firm repayment date; no alternative repayment dates are allowed so if the person borrowing the funds cannot repay on time, the loan defaults.
The options and terms for a Commercial bridging finance plan are straightforward as well as easy to understand. They are a great choice for those who have problems securing funds elsewhere, such as with “fast cash lenders,” private investors or banks who do not offer such short repayment times. With both options, there are advantages and disadvantages, so be sure you know your risk before deciding on an option and closing the loan.
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