Introduction to Commercial Bridge Loans

The commercial bridge loan is unique in that its intended purpose is simply to stabilize a situation and buy time. Let’s take a closer look at how this financing works.

A bridge loan is named correctly. While it has nothing to do with a pathway over something, it is definitely is designed to bridge a time gap. Let’s consider the simplest of situations.

You have a commercial building that is providing positive income. The financing is set to run out in 2010. The Great recession hits in 2008 and you realize that the balloon payment you have coming due in 2010 is going to be nearly impossible to meet. What do you do? Getting a long term loan during the uncertainty of the 2008 and 2009 period was difficult at best. The answer for many was to look to bridge loans because they provided financing that would carry the property through to a period when things had settled down, to wit, 2012 or 2013.

The thing to understand with commercial bridge loans is they are like a shot of alcohol. They are very compressed, pack a punch and you have to be careful when using them so that you don’t feel terrible the metaphorical next morning! Since the loans cover such short periods, they usually come with large point charges and high interest rates. The good news is they tend to also be put in place very fast. Turn around times are as short as 30 to 45 days and sometimes faster.

Commercial bridge loans are highly dependent upon the state they are in and the specific situation. They are sometimes referred to as panic loans because they are usually only made when a borrower has exhausted more traditional financing options. Lenders know this and there is a certain predatory lean to their lending efforts in this area. This is why it is critical to use an independent broker that knows how to keep you from being taken advantage of. A fair price is a fair price, but some lenders will go above and beyond that. Having someone in your corner who can call their bluff is vital.

Thomas Ajava writes about commercial bridge loan and other commercial financing topics for CommercialFinanceLenders.com.