There are often situations, where taking an investment decision for a real estate investor could be like taking a leap of faith—now or never—for the window of opportunity is usually small. Ultimately, you have to trust your instinct: you walk away, not prepared to risk your hard-earned investment; or, you close your eyes feeling this is the deal to persist with, and take a gamble.
Well, it shouldn’t be like that.
That’s where bridge loans can help you. Providing you with quick cash and so the means to take a safe risk on a real estate investment without having to put your money in it, it’s a very good financing option where you have to make a quick investment decision but have some doubts over the deal.
Yet, not only the inexperienced professionals but the seasoned investors as well, don’t exercise this option quite enough, mainly due to the unfamiliarity with the concept of bridge financing.
Our team, at GCP Fund Ltd., has always strived to educate clients about their different financing options to help them make a better decision. And to expand your understanding on the subject of bridge loans, we will be answering the most common questions pertaining to the loan concept.
Question #1: What are Bridge Loans?
Bridge loans are a type of business loan that allows you to acquire short term financing to fund a business project, until other—more permanent—sources of funding have not been secured. So, effectively, they help borrowers to bridge the gap, allowing them to take a low risk investment decision in situations where they have to act quickly.
Question #2: Why Bridge Loans are Often Labelled as a “Low-Risk” Financing Option for Real Estate Investors?
This is because investors can acquire a loan by simply referencing their equity in a real estate as a security. And with an exit strategy already well planned (the source of funding to arrive in the future), exchanging the equity for the loan amount for a short period of time, is something that is worth exploring for the investors without putting too much at risk.
Question #3: What is the Term Length for an Acquired Bridge Loan?
It varies from lender to lender, with the usual term length ranging between six to twelve months. However, GCP Fund Ltd. is among the few bridge loan financing providers in New York and nationwide, that offers terms to up to three years with the option to refinance a bridge loan into long term financing.
Question #4: What are the Eligibility Requirements for Applying for a Bridge Loan?
The eligibility requirements for a bridge loan are quite flexible, unlike those exercised in conventional lending options. You need an equity in real estate property, a detailed exit plan, a sound investment plan and you don’t necessarily need a good credit score to qualify.
Question #5: What Limitation Do Bridge Loans Carry?
Again, this may vary from one lender to another but the typical limitations with bridge loans can be briefed as follows:
- A short repayment term, as stated previously, usually lasting to a maximum of twelve months in most cases. However, a borrower can request an extension, and depending on the lender, it might be granted but that too only lasts for a few additional months.
- Secondly, borrowers can only borrow a fix amount that is usually 65-75% of the value of the property referenced as a collateral. Check this with your prospective lender to acquire a more accurate representation.
- Third, bridge loans carry a high interest rate, for they are often meant to be short term, because of which it might be seen as a limitation by some borrowers.
Got anything else to ask that you feel has been left unanswered? Don’t hesitate, reach out on our email address email@example.com or call us at 1-800-514-7350 and we will be happy to facilitate you.