Bridge loans are short-term financing solutions that are relatively easy to qualify for and versatile for business owners. They have shorter repayment terms than other loans, so they’re only for short-term projects, but their flexibility makes them useful in many situations. What opportunities can you take advantage of with the power of a bridge loan?
Property Improvements and Investments
A common way to use this type of financing is to improve properties. With a traditional loan, getting approved for remodeling is difficult. Many lenders don’t want to risk capital on something that isn’t a sure bet. With bridge financing, however, you can get money for expansion projects, interior design changes and many other improvements.
When would you use a bridge loan for this need? One circumstance is when you have a rental property that can benefit from a few upgrades or improvements. Installing new cabinets or making business locations more attractive can allow you to increase the rent.
Another option is when you’re purchasing a property with a traditional loan that only covers the asking price. With a little help from a bridge loan, you can take care of improvements at the same time. Many real estate businesses do this to be able to resell the property at a significant markup.
Another reason to use bridge loans is to speed up closing when you find a great deal on a piece of property. This is often the case with small business owners who have applied for an SBA loan. This type of loan is amazing in terms of interest rates and repayment options, but the downside is that getting approved can take months. While you’re waiting for the loan to get processed, someone else can sweep in and purchase the property you’re interested in.
With a bridge loan, you can get the needed capital to close in a few weeks instead of a few months. Later on, when the SBA loan comes through, you can use it to transfer the balance of the bridge loan.
Real estate businesses and fix-and-flip companies use this trick for foreclosure sales. There’s often a lot of competition, and the risk of a bidding war is high. The business that can get ahold of capital the fastest may win out. It’s nearly impossible to beat the speed of bridge loans.
How can you make sure a bridge loan is something positive for your objectives? Remember that it’s designed to cover needs over the short term. Look for bridge financing without prepayment penalties so you can pay it off with a long-term loan as soon as possible.