When it comes to commercial properties, bridging loans come across as a key financial tool for real estate players. These are short-term loans to provide quick access to funds.
Bridging loans are a savior as they try to bridge the gap between the purchase or renovation of a property.
What are Bridging Loans?
Bridging loans act as an anchor when you are stuck with an immediate need for cash. These are temporary financing options, especially for real estate transactions.
When it comes to commercial properties, these loans are very useful for investors where time is money. They also come to your rescue when you want to renovate your property and increase its value before securing long-term finance.
Key Features of Bridging Loan
Now that we have understood a bridging loan, we need to know the main characteristics of a bridging loan so that when we hire the services of a bridging loan company, we are clear about what we are getting into.
1. Accessibility
Bridging loans are known for their quick approval and disbursing loans which allows investors to remain competitive in real estate markets.
2. Short-Term Nature
Bridging loans offer flexibility to borrowers as a typical bridging loan ranges from a few weeks to a few months.
3. Secured Against Property
Bridging loans are often secured against the property being financed. This gives assurance to the lenders and enables borrowers to make their perception about higher loan amounts.
4. Avoids Financial Strain
Interest is often paid at the end of the loan term which minimizes the monthly financial burden on borrowers.
Step-by-Step Guide to Securing Bridging Loans for Commercial Properties
Bridging loans play a crucial role in commercial real estate financing as it allows investors to take advantage of lucrative opportunities.
1. Decide Your Purpose
You need to understand if you are looking to buy a commercial property, go for renovations, or bridge a temporary financial gap. Â
Once you understand your specific needs, it will be easier for you to share your needs with potential lenders.
2. Identify Different Lenders
When going for bridging loan services, it is important to conduct detailed research to identify lenders who specialize in commercial property bridging loans. You need to consider factors such as their reputation, experience, interest rates, loan terms, and customer service.
Moreover, you can also seek recommendations from industry professionals who have previously taken bridging loans for commercial properties.
3. Understand Loan-to-Value Ratio (LTV)
Assessing the Loan-to-Value (LTV) ratio is important to determine the maximum loan amount you can get against the commercial property.
Lenders calculate the LTV by assessing the property’s value and then offering a percentage of its worth as the loan amount.
4. Prepare Documents
It is necessary to organize all necessary documents required for the loan application process. This includes property details like the location and title deeds. You need to share personal and business financial statements including tax returns.
A detailed business plan that outlines your investment strategy, and how the bridging loan will help your commercial property transaction or renovation, needs to be prepared.
Finally, you will need your valid identification documents to verify your identity. Once you have prepared all the required documents, submit your loan application to the selected lender.
5. Property Valuation
After receiving your loan application, the lender will go for a professional property valuation to assess the commercial property’s market value. This valuation is important to determine the loan amount.
6. Legal Due Diligence
Along with the property valuation, the lender will conduct legal due diligence to verify the property’s title, ownership, and any legal issues that create problems during the loan transaction.
7. Approval and Offer
Once the lender completes the property valuation and legal due diligence, they will assess your loan application based on the property value, your financial stability, and the loan-to-value ratio.
Once satisfied, the lender will provide a formal loan offer that provides the approved loan amount, interest rate, loan term, repayment schedule, and any associated fees.
8. Exit Strategy
After reviewing the loan offer and ensuring that it is at par with your requirements, you need to formally accept the offer by signing the loan agreement and any accompanying documents. At the same time, you need to finalize your exit strategy. This outlines how you plan to repay the bridging loan.
9. Disbursement of the Loan
Once you have accepted the loan offer and finalized your exit strategy, you must complete any remaining formalities as the lender requires.
Upon meeting all requirements, the lender will disburse the loan funds directly to you or your account.
Final Thoughts
Securing bridging loans for commercial properties requires a systematic and well-planned approach. By following this step-by-step guide and using the expertise of reputed lenders, investors can go through the entire process with confidence and secure the much-needed finances.
