3 Common Commercial Bridge Loan Risks

  • February 21, 2020

With any commercial real estate investment, finding the right financial support is one of the first steps towards a successful project. There is a multitude of funding opportunities available from angel investments to crowdsourcing. Nonetheless, many start their search for funding researching the various types of commercial real estate loans, and, more importantly, corresponding loan requirements. Loan requirements dictate which funding that you are eligible for. Let’s say you’re looking to make a time-sensitive purchase of a distressed property. In this situation, the best loan for you would likely be a commercial bridge loan. Next, one might weigh the pros and cons of each loan option. By considering the risks and benefits of a loan before applying, you can be well prepared throughout the loan timeline. To help you through the process of finding the right bridge loan, we’ve compiled the following commercial bridge loan risks for you to take into consideration.

Commercial Bridge Loans Risks to Consider

Bridge Loans are Time-Sensitive

It is commonplace that the timeline of a loan will vary. As bridge loans are structured for clients in need of a timely financial solution, the loan timeline is shorter compared to other loans. Some bridge loans can take 45-60 days to close, while bridge loans from companies such as AVANA Capital can close as quickly as ten days. Due to this short timeline of closing a bridge loan, your project must produce enough revenue to allow you to repay your loan. The potential risk of loan timelines involves how profitable your project will—or will not—be before your loan closing date. Essentially, you will want to find a bridge loan with a timeline that fits your project’s revenue goals. This is ideal to ensure you have a smooth loan repayment process.

Commercial Real Estate Projects Have Various Financial Needs

Naturally, the financial needs of one commercial real estate project will differ from the demands of another. To emphasize, building a new hotel will have significantly different financial requirements than an apartment building renovation. So, a commercial bridge loan can be an ideal funding option for some projects, as mentioned above. However, certain projects may have financial constraints that can’t be covered by a bridge loan. As a bridge loan is often used by businesses while waiting for long-term loans, they are best used as short-term financial solutions. For this reason, one risk of taking a bridge loan can be that it will not cover your intended expenses before you secure a long-term loan. This risk can also apply to the structure a given lender has for a bridge loan. Certain lenders, such as AVANA Capital, work with clients to tailor a loan to the needs of their project. Tailoring a loan is done by partnering with clients to understand a client’s project in depth. Then, the base structure for AVANA’s flexible bridge loan can be altered to support the needs of a borrower properly.

Not All Banks Offer Commercial Bridge Loans

One of the major commercial bridge loan risks is that commercial bridge loans are niche. In other words, not every lender offers commercial bridge loans. Let’s say you are applying for a long-term loan solution with one lender. While you might also want to take out a bridge loan with that lender, there is a chance they don’t offer this loan. Conversely, finding a lender in the first place can be a challenge with niche loans like commercial bridge loans. In the end, the commercial bridge loan risk to consider here is the time it may take you to find a lender. This is a significant risk to consider, especially if your project requires money sooner rather than later. If a search for a lender takes too long, your project might become less profitable. A less profitable project can then lead you to our previously mentioned risk of not being able to repay your bridge loan during the expected timeframe.

Are you looking for a reliable commercial bridge loan lender?

Contact AVANA Capital’s team, who will guide you through the risks and benefits of commercial bridge loans and help you find the best solution for you.