Bridge loans for real estate are nothing new. There was a time when they could be obtained for both commercial and residential property transactions. These days, bridge loans are primarily for commercial purchases. They are designed to bridge the gap between needs and resources.

If you are new to the whole bridge loan thing, figuring it out should be easy enough with an illustration. Think of a typical highway bridge. A bridge spans the gap between two land masses. The gap could be a river. It could be a valley through which a road or rail line runs.

Bridge loans for real estate do something similar. They span the gap between immediate funding needs and future financial resources. The big difference with bridge loans is their short-term nature.

Terms Are Limited by Design

A bridge spanning a river is built for the long term. Engineers design such bridges to last 100+ years, if not longer. It is just the opposite with bridge loans. A bridge loan is purposely designed to have as short a life as possible. Terms of 6 to 12 months are ideal.

It’s not unusual for us to offer bridge loans to clients selling one piece of property while purchasing another. They are ready to close on the new property even though the property being sold will not be closed for three or four more months. A bridge loan facilitates the purchase transaction. It will be paid off with the sale of the existing property. Gap covered. Problem solved.

A Precursor to Traditional Funding

It is also not unusual for us to fund real estate transactions at the same time that a borrower is working on arranging traditional funding. For instance, you might have an investor looking at a retail property with multiple tenants. A bank does not want to finance the purchase without proof of steady rental income. That is not a concern for us.

As long as the property has enough value to satisfy our requirements, we can write a bridge loan that allows the client to close the deal. Several months later, when the client can prove stable rental income, he is able to arrange traditional financing. His bank loan pays off the bridge loan and everyone walks away happy.

There Has To Be an Exit Strategy

Perhaps you noticed in both of our examples that the client had an exit strategy. That’s the way bridge loans work. Since they are designed to bridge the gap between current needs and future resources, those future resources already need to be in play at the time of application.

In the hard money game, having an exit strategy is especially important. Hard money lenders have no interest in becoming landlords. So in addition to adequate collateral, lenders usually want to see a viable exit plan. The combination of both often gives the green light to approve a loan application.

A borrower’s exit plan could be anything capable of providing the financial resources necessary to repay what was borrowed. It can be traditional funding, an asset sale, an infusion of investment funding, or just about anything else.

Short, Sweet, and Easy

Bridge loans for real estate should be short, sweet, and easy. Borrowers shouldn’t have to jump through hoops for approval and funding. Likewise, lenders should have a reasonable expectation of being paid on time and in full. Bridge loans work best when both lender and borrower deliver.

A bridge loan spans the gap between current needs and future resources. Think of a bridge you drive across. A bridge loan does the exact same thing in the financial realm.