Financing and cash flow issues tend to have hard deadlines. What happens when a gap occurs between when current financing ends and new financing begins? For many individuals and businesses, the answer is found in bridge loans.
To make things as complicated as possible, the financial industry uses terms no person in their right mind would. Bridge loans are one area where this is not the case. The bridge loan does just that. It bridges a period of time with financing.
It always helps with financing to look for the simplest examples, so here we go. I buy a home and escrow is set to close on September 15th. I sell my home to fund my new purchase, but escrow will not occur till September 22nd.
I am in it deep. I am going to come up a week short on money. How do I fill this 7 day gap in my financing? The bridge loan is the answer. The loan will allow me to buy the new home with the money I get from my sale being used to pay it off.
If you think the home mortgage process is slow, you should see the commercial world. A 30 day approval period is considered blindingly fast. As a result, bridge loans are used pretty frequently to make ends meet while the financing comes around.
Traditional mortgages are cash machines because people will pay interest for 30 years without batting an eye. Bridge loans are profitable, but not in this way since there simply is not enough time to pull in enough on interest to justify the risk.
To make money on these loans, the lending party is going to hit you two ways. The first is to raise the interest rate into the teens. The second is to charge points up front. These points can range from two on up depending on what you need.
The costs associated with a bridge loan are the obvious disadvantage, but they have their purpose. Processing is done very quickly and with little documentation. When you need immediate financing, these loans are just about your only option.
There is one catch with bridge loans you need to be aware of. The LTV on these loans is rarely above the sixty percent range. LTV refers to the loan size compared to the value of the asset you are borrowing against.
While bridge loans are not all that common in the personal finance world, they can make all the difference in the world of commercial finance. If your business runs into a time problem, make sure to take a look at them.
About the Author:
Learn more about bridge loans by speaking with a bridge loan specialist at CommercialLoanStop.com.
Ten years and counting | Dev release: 0.2.153.1 | What would you ask Senators McCain and Obama? | Announcing the Android 1.0 SDK, release 1 | Lucy's final tips for Friday newbies | Show off your Followers | The first Android-powered phone | Gears for Safari vv . .. ... .... .....
0 comments:
Post a Comment