A Bridge Loan is a financing vehicle facility that enhances the income of a property by renovation or changing the property’s use. Bridge loans can accommodate a variety of project types.
Documentation that is extremely important to the Bridge lender are the property and market area history, borrower’s resume and development experience to help support the deal, appraisal and feasibility study justifying project.
Lower interest rates and fees are available for projects with signed credit tenants. Stronger projects can secure financing up to 90%. Majority of bridge lenders offer non-recourse loans.
Interest rates of 100 to 200 bps above typical bank rates are common. Interest-only terms during construction are normal. Majority of Bridge lenders will ask for one point or more for financing and some will consider ½ to ¾%. Total origination fees can vary from 1-3%. Borrower expenses include appraisal, legal, engineering and environment, survey, etc.
Bridge loan lenders are interested in office buildings, industrial properties, apartments, regional malls, and hotels. Financing can range from $1 million and up, however most lenders have established a minimum of $5 million. Amortization schedule of 20 to 25 years are common. Bridge loan terms typically run 1-3 years.
Mezzanine loan terms are typically 3-7 years. Loan to cost can run up to 97%. Higher loan and exit fees will apply.
How does a bridge loan work?
Watch the following video from eHow Money, that explains the concept behind these loans.