A bridge loan is a great way to secure the funding you need to make the most of a business opportunity. They are very popular with investors making short-term real estate purchases with the intent to rehab and resell for that reason. They are also frequently used by companies seeking an influx of working capital because they can be taken out for purchase or used to refinance existing real estate assets.

How Bridge Loans Work

These hard money loans use your real estate as collateral to secure the debt. This gives the lender the opportunity to repossess and resell the property to recoup losses if you default. Depending on the LTV you are seeking and the length of the loan, interest rates often run upwards of 9%, making them slightly higher than commercial mortgages. The advantage of a bridge loan is that it is for a shorter term, typically between six months and three years. It is also typically set up to require interest payments only during the term, with a full principal payoff at the end.

Refinancing with Bridge Loans

You do not have to own property outright to refinance its equity with a loan. You can take out bridge loans using the equity in properties that have commercial mortgages already, provided you have the equity to satisfy the lender left over in the property once it is refinanced. If you do refinance a property you own outright, many providers will offer up to 90% LTV. For new purchases, some even finance the entire purchase price.

Credit Scores and Bridge Financing

When you apply for hard money loans, credit numbers are not as important as the value of your collateral. There is still a credit check done as a risk assessment, but it is rarely the reason an applicant is turned down on its own. More frequently, it is a combination of credit and something like a property valuation out of line with the purchase price. Credit does have a big influence over the interest rate offered, though. The higher you can keep your score, the less your next bridge loan will cost.

Application Processing Times

Bridge loans tend to be quick to approve, making them useful as a closing tool even if you intend to refinance into a longer term loan. Application to closing is often ten days or less, with repeat customers whose record and business model are known to the lender often enjoying even shorter application processing times. That’s ideal if you intend to use these loans to fuel a real estate investment business.