You can call short term real estate lending bridge loans, hard money, or interim lending. The business model is the same.
What Bridge Lenders Want:
Lenders in the interim real estate loan area all want basically the same criteria when considering your real estate for an interim loan.
- The lender’s value not to exceed 65-70% of present value.
- A location where comparable properties can be viewed.
- Existing income to serve the bridge debt or future proforma income.
- Short term real estate loan funds that can be used to enhance value and proforma income.
Equity lending, another name for bridge lending, requires that the borrower or sponsor has money at risk from his equity in the property.
Experience in what the borrower is planning to do with the interim mortgage money.
Some lenders want personal guarantees, mostly for difficult or risky debt. Other lenders do not require a personal guarantee if the project is well conceived.
There are an increasing amount of us in the marketplace. Most business school hatched graduates who set up real estate funds for this project, have raised money from investors, and now want to get that money out.
Better projects can be as low as 6% per year. Less loved projects can ask 12% per year.
Know your exit plan. How will you pay off this short term real estate loan? Lenders want to know how they get paid back and you need to know as a borrower that you can pay them back on or before the loan maturity date.
Bridge lending has hit the main channel in the lending arena. Do not be afraid to take that bridge. Preparation can avoid the heavy toll.