Bridge loans are available from a variety of lenders including banks, credit unions, and non-qualified mortgage lenders. It turns out that hard money lenders, also known as private lenders in some circles, offer bridge loans too. But bridge loans for them are a bit different.
More traditional lenders are very specific about how bridge loans can be used. They are not very flexible in meeting unique borrower needs. On the other hand, private lenders can be a lot more flexible. Bridge loans act as a multi-functional product capable of meeting a variety of needs.
Closing On An Investment Property
It is important to mention that the majority of private lending made available through hard money firms is to support real estate transactions. Most of those transactions involve investment properties.
Actium Lending is a Utah hard money firm that includes bridge loans on its list of products. Like others in their industry, Actium writes bridge loans as short-term financial instruments intended to fill in the gap between financial needs and resources. Most of their bridge loans cover real estate transactions.
One of their loans was made to a real estate investor looking to buy a new rental property while trying to sell another. The scenario was very similar to one a residential buyer might take to a local bank. At any rate, the investor really needed to get to closing on time so that he did not lose the new property. Actium was able to offer a bridge loan that sealed the deal. After the older property sold, proceeds went to pay back the bridge loan.
Addressing a Cash Crunch
Bridge loans do not have to go to real estate transactions. In fact, another case from Actium Lending involved a business owner facing a significant cash crunch. Due to an expected check not arriving on time, the business owner found himself unable to make payroll. Actium was happy to step up.
The business owner had real estate he could offer as collateral. Actium determined the property offered enough value to cover its risk. They made the loan, enabling the business owner to pay his employees.
Available for All Sorts of Needs
Bridge loan basics are nearly identical regardless of source. A bridge loan is a short-term loan made when a borrower has an immediate financial need and a reliable source of future income to make good on the loan. But what makes bridge loans from private lenders different is flexibility.
Private lenders are not bound to a corporate business model or a particular lending mindset. They are free to lend to whomever they want and for virtually any purpose. In fairness, most private lenders limit themselves to certain loan types and customer sets. But they don’t have to. They are free to lend as they see fit.
This opens the door to funding all sorts of needs with bridge funding. We have already talked about two real world cases. Another example is a mid-sized company looking to restructure its debt. A bridge loan is ideal for such needs.
A bridge loan allows the company to pay off an existing debt instrument on time. Meanwhile, the company can arrange a new line of credit to keep business operations going. Once that line of credit is up and running, it can be leveraged to pay off the bridge loan.
A Valuable Product, Too
The bridge loan is a multi-functional product for the average hard money lender. To borrowers, it’s also a valuable tool. Bridge funding allows borrowers to do things they could not otherwise do. For that reason alone, bridge funding is worthwhile.