The easiest way to get the Construction Loans.

If you’re a small business in the construction vector, then you know how hard it is to get the ball rolling. Many small businesses have it tough in the beginning due to a lack of investors. Many banks require reams and reams of paperwork just to get your foot in the door. Thankfully though, there are outlets that exist primarily to assist small construction businesses.

                Commercial construction loans are becoming exceedingly important with material costs on the steady rise. For the construction business, commercial businesses are lucrative venues to pursue because of the sheer size of each construction venture. When commercial businesses are seeking a construction company, they are not just searching for one to reconstruct just one or a few rooms. Most construction businesses will be linked to reconstruct full wings or sections of an office building. That is why commercial ventures are sought after so heavily by construction companies. With so many people associated with one commercial project, it is easy to spread word of mouth and even make numerous networking connections from one project.

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                The way that loan companies are able to profit from their loans to construction companies is through equity. Commercial construction loans are geared towards completing big ventures such as retail stores, office buildings, apartment complexes or any other property that will bring income. They are responsible for initially getting the project off the ground. Usually investors get their return on investment by receiving a greater financial value that the amount of money fronted to complete the construction. With many retail stores or shopping centers a profit can be easily maintained. For offices though, the amount of financial value added to the investor will depend highly on the business venture in addition to a projected business plan.

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                Apartment construction loans work in a similar fashion but are intended just for contracting and construction companies that build apartment complexes. In general apartment construction loans are a little easier to get than commercial ones because there is a fixed pool of patrons. It is more difficult to lose money through an investment for an apartment complex so that’s why these loans usually go through easier although they’re still not a guarantee. All in all, a lot of preparation goes into being approved for a loan so it is important to spend time on research and development before requesting for a loan. In many instances, you have one chance to make your pitch.

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Is Your Bridge Loan a “Bridge to Nowhere”?

bridge

Pronunciation: /brij/

Noun

1:  a structure built to span obstacles for the purpose of providing passage over the obstacle.

The definition of a “bridge” connotes a number of challenges that need to be managed successfully before the engineers & politicians can pop open the champagne to christen the bridge a success.

What makes a bridge successful?

1)      Correct identification and evaluation of the nature of the “obstacles” the bridge is intended to ease.

2)      Finding the right group to build the bridge on time and at reasonable cost.

3)      Making sure the bridge works, in that it takes you where you want to go, safe & sound.

The bridge analogy is great when the discussion switches to bridge loans.  A successful bridge loan conquers the same challenges as constructing a brick & mortar bridge over the Mississippi.  (I understand there are over 220 of them.)

First identify the financial obstacles, then determine the right loan structure, and finally make certain the bridge loan takes you to where you need to go.  A bridge loan without a sound exit strategy is about as advantageous as the proverbial bridge to nowhere.  Both inevitably lead to a good soaking!

What is a bridge Loan?

Bridge loans are designed to provide temporary passage over a financial obstacle or rough spot.  Like the concrete bridge that serves a short distance of the entire journey, the bridge loan is designed as a temporary financing strategy, in place only until permanent financing can be arranged.

• Duration for mortgage bridge loans typically range anywhere from 90 days up to 3 or 5 years which is considered short term for real property or mortgage loans.
• The monthly payments are usually calculated on an interest only basis with the principal balance coming due as a balloon payment at the end of term.
• Bridge loan rates are typically much higher than their corresponding conventional counterparts.
• Bridge loan financing typically refers to loans backed by real property or mortgages.
• Some, but not all in the industry use the term “bridge loans” and “bridge loan lenders” interchangeably with “hard money loans” and “hard money lenders”.

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Who uses bridge loans?

Most types of loans can theoretically be “bridged” until more permanent financing is put into place.  Construction loans, commercial loans, rehab loans, mezzanine loans and residential loans can all incorporate bridge features.  The common denominator for the bridge loan  is the temporary nature of the loan.

Some examples:

Residential Bridge Loans:  The home buyer commits to buy a new home but is unable to sell his existing home before the closing date of his new home.  The bridge loan is secured to the buyer’s existing home and the funds are then used as a down payment on the move-up home.  When the existing home sells, hopefully within a few months, the bridge loan is retired with the proceeds from the sale.

Commercial Bridge Loans:   A commercial property buyer is offered a substantial discount on the property’s sales price if he can close within 30 days.   Conventional lenders require more time to underwrite, process & fund so the buyer seeks a bridge loan to meet the closing deadline.

Construction Completion Loans:  A builder runs into construction or project delay.  Their 2 year construction loan is coming due and their current lender has either said “no” to an extension or decided not to extend the loan past the original term.   In this case, the builder seeks an interim or construction completion loan.

Rehab Loans:  The borrower is purchasing a property in sub par physical condition and intends to rehabilitate the property and then elect to either resell it or find a tenant.  After the borrower “flips” the newly refurbished property, he pays back the loan from the sale proceeds.  If the borrower elects to keep the property and rent it out, he or she will seek out conventional financing.

Are bridge loans hard to find?   They can be.  Most lenders offer bridge loans on a custom, case by case basis.  Many bridge loan lenders are private and have specific criteria and restrictions with regard to the type and geographic location of the collateral property.  All the basic best practices of how to find a lender apply equally to bridge loan lenders:  meet many, choose carefully & commit once.   The one thing the lenders will all have in common is their willingness to underwrite a bridge loan increases proportionately with the feasibility & certainty of your exit strategy.

How best to avoid the bridge loan to nowhere? Key to avoiding the “soaker” or the bridge loan to nowhere is to have a strong exit strategy.  The ability to articulate & demonstrate that strong exit strategy to prospective lenders will help tremendously in finding, building and ultimately choosing the right lender relationship and it will help get you the best possible deal.

Preparing for Commercial Real Estate Loans from a Commercial Mortgage Lender

Business real estate, indeed, any real estate can be a complicated business. When it comes to commercial mortgages, typically the commercial property itself is used as the collateral in default of payment. Finding a commercial mortgage lenderis easier than many may people think; many banks, even in tough economic times are more willing to extend loans to a business where they may not be willing to extend a loan to an individual. Commercial real estate loans will still need for the borrower to have a good credit score, however, and often seek information about previous and prospective business successes. 

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Depending upon the bank's criteria, when it is time to underwrite commercial real estate loans many companies will look carefully at the property in question. This will often include an inspection of the commercial property, and will take into account the condition, location and upgrades of the property. A commercial mortgage lender may look at what is called loan to value, which is the amount of the loan versus the amount of the value of the property. In addition, the interest rates for a property used for commercial purposes may be somewhat higher than a loan for a residential property.

If you want to open a small business or move to a different property, finding a commercial mortgage lender who is well versed in small businesses is crucial. Many commercial real estate loans for a small business may have stipulations, due to the higher risks that come with operating a small business. However, there are many sources that can help you understand the financial requirements you need. Look online, and see if there are checklists that can help you prepare for getting a commercial loan, and always check into government grants or loans, as this may be a potentially lucrative resource. 

If you want a local commercial mortgage lender, always try to look at the competition carefully. See which company offers the best terms for commercial real estate loans, and which have had the most foreclosures. If possible, make an appointment at several different companies to consult about initial terms, financial possibilities and opportunities. This may give you an added advantage when it is time to draw up the loan terms.

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