Imagine a real estate investor on the verge of acquiring a multi-unit property with active leases. He has jumped through every hoop to get the deal closed in a timely manner. Then, just a few days before closing, the bank backs out. He could lose the deal along with all the money he already put into it. But if he could get a bridge loan, maybe the deal could be saved.
This scenario is actually one that comes right from the files of Salt Lake City-based Actium Partners. Their client was poised to close on a multi-family apartment property on Monday morning. But on the Friday before, the bank pulled out. Actium saved the day with a bridge loan that allowed the client to close on schedule and then work on securing traditional bank financing.
A Familiar Scenario
Believe it or not, the previously described scenario is pretty familiar to lenders like Actium. Banks backing out of commercial deals happens more often than most people realize. It is not because they are jerks looking to make life hard on real estate investors. It’s because commercial real estate is risky business.
When a bank lends for commercial property acquisition, it is often lending a substantial amount of money. Millions could be on the table. In addition, there are other aspects to commercial property that increase the risk lenders need to take on. There are times when the risk just isn’t worth taking.
Bridge loans from companies like Actium Partners can make a world of difference when a bank changes its mind. That’s why real estate investors love them so much.
A Comparatively Fast Solution
Bridge loans for real estate are unique in a variety of ways. For starters, getting a bridge loan doesn’t take a whole lot of time. A borrower gets a fairly fast financing solution that doesn’t get in the way of closing on schedule.
In the previously cited example, the borrower contacted Actium on Friday morning. Actium was able to send a representative to appraise the property being acquired. A satisfactory appraisal allowed the team back at the office to begin drafting loan documents on Friday afternoon.
On Monday morning, documents were signed by the client and funding was electronically transferred to the title company facilitating the closing. Closing occurred on schedule. No bank could have done that. Yet hard money lenders can because their application and approval processes are built for speed.
Banks Almost Always Need More
Speed is definitely one of the things that make bridge loans so attractive to real estate investors. But investors also appreciate the fact that hard money lenders don’t require nearly as much as banks to do what they do.
Banks do business based on fairly tight and restrictive model. They are very particular about what they do and how they do it. As a result, they need a lot more in terms of documentation, credit and income verification, etc.
Banks also need a lot more reassurance that the risk associated with a particular loan is manageable. To be sure, concerns over the risk involved in a particular loan are what so often lead to a bank backing out. Everything looks to be okay, but then something pops up that makes the bank reevaluate its risk.
Bridge loans for real estate can save the day when banks bail. For some real estate investors, obtaining bridge loans is never even a question. They automatically go to a hard money lender first, with the expectation of lining up traditional funding later on. That makes for easier deals and fewer headaches.