By Liz | Capital Bridge Partners
Why Opt for a Bridge Loan?
Private real estate loans are often more expensive than those offered by traditional lenders, usually at a premium of 2.5-5%. So, what’s in it for the borrower? In spite of these higher rates, there are a number of reasons why a borrower might work with a private lender when investing in real estate.
Private money, and in particular bridge capital, creates opportunities for real estate borrowers otherwise unavailable through bank loans, which we summarize as follows:
Bank loans can be a desirable form of financing because they usually offer good rates and terms. With this cheapness, however, comes inflexibility. The underwriting timeline for banks, usually 45-60 days, is much longer and more rigorous than that of a private lender because banks have a lower risk tolerance. This can be frustrating for investors that need access to large sums of capital quickly.
In contrast, private lenders are incentivized to disburse funds quickly, provided that the deal falls within their debt investment criteria. For private lenders, a more efficient underwriting process means a more profitable operation, so their motivation for quick turnarounds aligns directly with the borrower’s. For borrowers, a faster turnaround may make the difference between a successful purchase and a missed opportunity, especially if the seller is also looking to quickly close the deal.
Our team averages 2-3 weeks to complete closings depending on the complexity of the transaction. If we are confident with the parameters of a deal, we move immediately into underwriting and valuation of the asset to finalize our financing terms.
To evaluate a deal, private lenders focus on the collateral of the loan, rather than the borrower’s creditworthiness.
At CBP, our underwriting process centers around the value of the asset, the borrower’s ability to execute on the proposed project, and the refinance strategy out of the bridge loan. By focusing on these factors, we do not have the same stringent requirements for the borrower’s financial background as traditional banks. Our clients may be high net worth individuals that report losses on their tax statements, they may be bankrupt, or they may fail to meet typical DSCR thresholds.
We enjoy being able to help borrowers who are otherwise ineligible for bank loans fulfill their investment goals. We can evaluate each deal as an individual transaction because we are collateral-based.
There are many types of private real estate lenders, ranging from individual trust deed investors, family offices, to debt funds (like us!). Among these providers, the decision for loan approval is usually made by an individual investor or a small loan committee.
The underwriting approach at Cap Bridge is hands-on: we work closely with the borrower throughout the diligence process to understand the business plan. Our principals, for example, will often inspect the collateral personally before closing. This contact with the funding party enables borrowers to move the deal along faster and secure their financing.
Whether you’re in need of a bridge loan, fix or flip loan or construction loan, we are ready to help get you the loan you need that works best for you. Don’t hesitate to contact us today at 415-820-4770 or click here to send us a message.