Commercial Bridge Loan Seekers, Here Are 5 Cautions With Commercial Bridge Financing

For many commercial real estate owners or buyers, their needs are virtually ignored by banks. And why not? They get really cheap money (near zero interest rate) from the Federal Reserve that they can buy US Treasury bonds and pocket a good spread with no risk.

As a result, a large number of these entrepreneurs have to take out a commercial bridging loan on their commercial property to sustain themselves for a few years until commercial credit is released or until they sell their property. And while these loans aren’t cheap, they can mean the difference between keeping your property and losing it. However, there are some conditions for these loans or mortgages that a potential borrower should be aware of. Here are 5 critical surveillance outlets you need to be aware of.

1. Prepayment Penalties – A business borrower should try to avoid a loan with a prepayment penalty, as like the subprime mortgage implosion, these penalties can wreak havoc on your future refinancing or refinancing plans. sales. Not having a prepayment penalty gives you much more flexibility.

2. Loan Term – Commercial borrowers need to make sure the term is long enough to move on to the next phase, whether it’s a refinance or a sale. Too short a time frame can lead you back into hot water. If you avoid a prepayment penalty, there is no problem in a term longer than necessary as a type of insurance.

3. Borrow too little: You want to make sure you borrow enough to cover those little (or big) surprises. Again, as in number two above, it’s just good insurance, particularly in these uncertain economic times.

4. Borrowing too much – Yes, I know I just warned you not to borrow too much, but you can easily overdo it and borrow considerably more than you need. If you’re buying or building a commercial building, it’s very easy to borrow enough to cover all those “bells and whistles” that are best done with future cash flow from your property or business.

5. Using the wrong loan structure – A commercial bridging loan can be structured in many ways. Make sure you don’t just take the first loan structure the lender presents to you. Be creative. You may want an experienced third party to help you determine which structure is best for you and your business. Remember, the lender will propose what is best for you. You need to counter with what is best for you and your business if different.

There you have it, 5 things to consider when getting a business bridging loan. Make a note of them and use them when negotiating your bridge financing business terms.