Originators who close small-balance commercial mortgage deals understand the value of diversifying one’s product offerings. Those looking for another wrinkle to add to their business should consider taking on the bridge loan opportunities they see in their territory today.
New to commercial bridge lending? Take a quick look at the borrower motivations that drive commercial bridge loan transactions and examples of common bridge loan scenarios to get up to speed. Then visit Silver Hill Funding’s Bridge Loan page to learn how you can take advantage of alternative solutions to close more deals each month.
1. What do commercial bridge loans look like?
Bridge loans are short-term real estate loans that act as a stop-gap measure for borrowers who ultimately desire long-term solutions.
How short are the terms? A typical commercial bridge loan may feature a term of anywhere between a matter of months and around 3 years. Every lender is different – for instance, Silver Hill Funding’s Bridge Program features primary terms of 1-3 years.
Given the transitional nature and reduced term, bridge loans generally include higher interest rates than long-term alternative financing vehicles. As far as payments are concerned, they are typically non-recourse and interest-only in nature.
2. What are the borrower motivations for bridge loans?
There are many reasons why owners and investors seek out bridge financing, but here are some of the most common motivations:
- The seller is operating on a tight schedule and the bridge loan gives the borrower time to secure the financing necessary to buy the property
- The borrower is looking to purchase and improve a property before refinancing at a lower rate
- The borrower wants to improve their property before selling for a higher amount
- The borrower needs a temporary solution while they improve their credit situation
As is typical in commercial mortgage transactions, every case is unique. But originators on the lookout for bridge opportunities are likely to encounter the above scenarios most often.
3. What is a common example of a commercial bridge loan?
Let’s say your client is looking to purchase a multifamily investment property but is struggling to secure a great deal with lenders based on the valuation of the building. The client believes that with some basic renovations, they can re-tenant the property, increase rents, and ultimately improve the property enough to warrant a more attractive lender valuation.
The investor in this situation could secure a year-long bridge loan to help them finance this strategy. At the end of the term, they could be well-positioned to refinance with a long-term mortgage featuring more favorable terms based on the improved valuation.
4. Where can originators get the best financing options for their clients?
Traditional lenders, like banks, do offer commercial real estate bridge loans – the challenge is that it can be difficult for investors and business owners to qualify for their programs. This is because bank guidelines are generally not designed to accommodate the extenuating circumstances or “story” that often accompanies bridge financing requests.
Instead, many borrowers will work with a non-bank alternative lender when securing their commercial bridge loan. Included in this category are hard money options, marketplace lenders, and other non-bank alternative providers.
These lender options are able to provide faster closings and more flexible terms to go along with a higher interest rate. It’s a trade-off many borrowers are willing to make, especially since those qualities are typically aligned with their short-term objectives anyway.
5. What is the Silver Hill bridge loan solution?
Originators looking for a smart, non-bank solution for their clients can now add Silver Hill Funding’s Bridge Loan Program to their commercial product offering.
Silver Hill’s new program provides nationwide financing for both transitional and stabilized commercial real estate assets – including multifamily, mixed-use, retail, office, industrial, hospitality, and warehouse property types.
Additional program highlights include:
- Loan amounts: $1-5MM
- Terms: 1-3 years
- Max LTV/C: 80%
- Amortization: Generally interest-only with principle amortization structured on a case-by-case basis
- Interest rates: floating interest-only starting at LIBOR +500. Fixed rate options available
- Borrower: Single purpose entities
- Recourse: Non-recourse to principals except for bad-boy carve-outs; further guarantees may be required on a case-by-case basis.
This program is designed to help originators close more of the bridge opportunities they see every day. By providing attractive short-term solutions for their clients, originators put themselves in a great position to be called upon again when it comes time to take the bridge loan out with a more permanent loan.
