Financing a Commercial Real Estate Deal with a Bridge Loan

Financing a Commercial Real Estate Deal with a Bridge Loan

Financing a Commercial Real Estate Deal with a Bridge LoanThere are distinct differences between financing a commercial real estate investment and purchasing residential real estate. Generally, commercial real estate requires a far more significant financial commitment than residential real estate, due to the size and nature of office buildings, retail developments and multi-family properties. This means that the conventional lending options can be difficult for the average investors to utilize, and increasing regulations have only made it more challenging for commercial investors to go the tried-and-true route.

Now, creative financing is becoming the norm, and bridge loans are the lending option of choice for many commercial real estate investors.

What is a Bridge Loan?

According to the National Real Estate Investor, a bridge loan is a short-term option that can be used by commercial investors when they do not meet the qualifications for conventional financing options. In most cases, a bridge loan comes with a term of 12 to 36 months. While some commercial real estate investors know right away that they will need a bridge loan, others find out at the last minute that their original financing plan is not going to work out. In these unexpected circumstances, a bridge loan is the ideal solution because approval is granted quickly and the deal can move forward as scheduled.

Why are Bridge Loans Becoming More Common in the Commercial Real Estate Industry?

The use of bridge loans for commercial real estate deals in Carver County, or even all over Minnesota, and throughout the country surged during the last year, due to a variety of factors:

  • Commercial real estate investors sometimes face different challenges than home buyers looking for residential real estate. These include credit issues, rehabilitation issues regarding the property or inadequate cash flow for a significant commercial investment.
  • Conventional lenders who provide financing to commercial real estate investors have increased their restrictions and regulations. They have made it more difficult for commercial property investors to meet their requirements for lending, and at the same time, they are being forced to adhere to stricter industry regulations.
  • Commercial property values have increased significantly, and there are more investors interested in owning commercial buildings. When investors are competing against other well-qualified investors, they need to be able to get adequate financing quickly in order to secure the deal.

Is a Bridge Loan Right for Your Commercial Real Estate Deal?

A bridge loan may be the exact type of financing that you need in order to score the hottest commercial property in Minneapolis or St. Paul. Here's a few things to consider as you decide whether or not to get a bridge loan for your next deal:

  • A bridge loan can provide you with the funding that you need to renovate or refurbish a commercial space. One of the main reasons that commercial property investors use bridge loans is to get access to the cash that they need to upgrade a space prior to renting it out to potential tenants.
  • As industry regulations increase and credit requirements tighten for commercial lenders, you can opt for a bridge loan to secure the financing you need despite the fact that your current credit is less than ideal. Opting for a bridge loan for credit issues does not mean that you have poor credit, it just means that you need extra help as the conventional lenders become stricter about their own requirements.
  • Bridge loans can be approved quickly, making them an ideal option for commercial real estate investors who have stumbled upon an unexpected opportunity or who are approaching an important deadline. For example, many conventional lenders require commercial real estate investors to have a management team and strategic plan in place for the property prior to approval for the loan. In many cases, this is not possible to do when a great commercial property becomes available in a competitive market. In a situation like this, a bridge loan is often the most viable option.
  • This type of short-term financing is also available to commercial investors who are focusing on land development. For many who are looking to build a commercial space on vacant land, conventional financing solutions are not an option. Bridge loans can provide investors with the cash flow that they need to complete their project and get it up-and-running.

The need for a bridge loan will vary depending on the investor, their lending preferences and the types of commercial properties that they are looking to purchase in Minnesota. It is important for commercial real estate investors to explore all of their options and create a financing plan that allows them to accomplish their goals as well as effectively manage their investments.

To learn more about available commercial real estate properties in Minnesota and to discover the financing options that may be available to you as an investor, contact an experienced commercial real estate agent today.

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