Bridges Keep Your Clients Afloat
For clients who don’t yet qualify for conventional financing, bridge loans can help
By Lisa Kelly, director of sales and marketing, Equity Secured Capital
The collapse of the credit
markets has made bridge loans necessary for many commercial mortgage borrowers. And in particular, it likely
has made hard-money bridge loans even
more appealing. These loans can take your
clients from an undesirable position to a
workable one and can facilitate a transaction for a property that has negative or no
Because hard-money bridge loans are
speculative in nature and do not require
traditional income documentation, banks
don’t offer them. Rather, these loans typically come from smaller, private-lending
firms, investment pools or individuals. The
typical client is bankable, but for various
reasons, the deal isn’t.
As a mortgage broker, you may face
many situations where your clients need
financing to bridge the gap until they qualify for a conventional loan. When offering
these loans to clients, also make sure you
are dealing with a direct lender. It will save
your clients money and time.
Bridge lending can meet clients’ financing needs using creativity. For example, if a
client doesn’t have 30 percent to put down
on a purchase, most bridge lenders allow
cross-collateralization. That is, clients can
pledge another property they own. If the
equity is available in property they already
own, your clients may be able to put little
For some deals to progress,
resourcefulness is invaluable.
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or no money down in the transaction.
Here are some other examples of scenarios where a bridge loan may help:
■ Predevelopment deals: A client needs a
loan for a land purchase for development.
The bank won’t make land loans because
of their speculative nature, however. With
a bridge loan, your developer client can get
the land zoned and entitled properly. Once
the property is ready to be developed, your
client likely can get a construction loan from
a more-conventional banking source.
■ Speed of closing: A client signs a purchase contract on a building, and the bank
agrees to make the loan. The client must
close by a particular date or will lose the
property. Speed, however, isn’t in the bank’s
vocabulary. Most hard-money bridge loans
can close within two weeks. Your client can
take one out for three months, giving the
bank time to complete its due diligence.
■ Increased cash flow: One of your clients
has owned a property for several years but is
currently property-rich and cash-poor. The
client can use a hard-money bridge loan to
pay off the mortgage on the property and
get additional cash.
Keep in mind that although these lenders primarily look at the property, clients
with poor credit are not good candidates
for hard-money bridge loans. Hard money
doesn’t equate to bad credit.
Although they can help many people,
hard-money bridge loans are riskier than
traditional loans — and risk is costly. Interest rates typically are 12 percent to 16
percent, and brokers often get 2 points to
5 points. Terms range from three months
to three years. Also, loan-to-value ratios
for these loans generally don’t exceed 70
percent. For purchases, loan amounts typically are based upon loan-to-cost ratios,
Collateral is another key factor for
hard-money bridge lenders. They typically
evaluate properties’ current values. Unlike traditional lenders, hard-money bridge
lenders often value the real estate only and
do not account for leases or income.
In addition, don’t expect a lender to accept your already-ordered appraisal, even
if it is from a certified appraiser. The lender
likely will want to make its valuation from
its own trusted appraiser.
Although the current credit crisis has
tempered banks’ lending appetite, your
clients still have options. There are many
opportunities today to make bridge loans
work for them.
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Lisa Kelly is director of
sales and marketing for
Equity Secured Capital,
a commercial mortgage
lender specializing in making hard-money bridge
loans in Texas. There,
Old Republic National Title Insurance Company | Old Republic General Title Insurance Corporation | Mississippi Valley Title Insurance Company | American Guaranty Title Insurance Company
*Where permitted by state law and subject to under writing approval.
she is responsible for business development.
Reach her at (512) 589-5388 or lkelly@