Bridge Loans by Andrew Bogdanoff

by 05 Dec 2008
For commuters crossing the Golden Gate Bridge to get to work, the value of a highly capable, stable bridge crossing is priceless. The same can be said for bridge loans, which are generally low cost, are used for a specific purpose and help borrowers ?bridge the gap? between funds they need and funds they will soon have. Just like the name implies, a bridge loan is a solid option that takes a borrower from one point to another. Used in commercial and residential lending alike, a bridge loan is another viable lending option that skilled brokers can use when appropriate Definition of a Bridge Loan The most clearly defined characteristic of a bridge loan is the fact that the lender requires a specific exit strategy before the loan is made. If a very clear, precisely drawn exit strategy does not exist, the lender will not move forward with the bridge loan and might refer the borrower to a different kind of loan type. Borrowers frequently use a bridge loan to secure funding required for buying a secondary property, often times before their initial property has completed the sales cycle. For example, assume a borrower needs $100,000 as a down payment for a new property he wants to purchase. He has the equity in his existing property, which is set to close in the next 60 days. The down payment for the new property is due sooner than the initial property will close. In this instance, a bridge loan can provide the $100,000 that the borrower needs in the timeframe he needs it. Bridge loans, which carry a small amount of risk for the lender due to the requirement for a clearly articulated exit strategy, usually close quickly. Using the previous example, if a borrower walks in with a purchase agreement for property number one, the underwriting process is significantly simplified and the loan funds more quickly. Not to be Confused with Hard Money For such a frequently used loan, much confusion exists about a bridge loan. It shares some of the same characteristics with its cousin the hard money loan, which leads a high number of borrowers to confuse the two types. Both bridge loans and hard money loans can be quick to close, are used for a relatively short period of time and have limited or less severe underwriting processes, but significant differences exist between the two loan types. Bridge loans absolutely require a definitive exit strategy. This is best highlighted using the previous example of a borrower that wants to buy a second property before selling his first property. A lender will not accept the desire to sell the first property as an appropriate exit strategy. There are too many unreliable variables such as when the first property will sell or for what price. A lender would, however, accept a signed sales contract for the first property as a solid exit strategy since the contract spells out exactly where and how the borrower will repay the debt. Also, a bridge loan frequently has a loan to value ratio from 70 to 95 percent, whereas a hard money loan will not exceed 50 percent loan to value. Points and fees associated with a bridge loan are low and the rates are generally inexpensive, unlike a hard money loan, which is known for being costly. Additionally, hard money loans, which do not look as closely at credit or cash flow, put the emphasis on collateral. The lender will scrutinize the collateral to understand if enough exists to liquidate the asset and collect the debt amount should the borrower renege on the loan. Because a bridge loan focuses so heavily on the exit strategy, the risk profile has been reduced significantly, meaning that the lender does not have to rely so heavily on using collateral to repay the debt should a problem arise. What to Remember Bridge loans are a valuable option for brokers to keep in their stable of lending options. It?s fast, reliable and there is a broad swath of borrowers in need of such a loan. The important thing to remember about a bridge loan is that a very real exit strategy is a must for any bridge lender. In this vein, a purchase agreement that verifies that there is no mortgage or structural contingency will signal to the lender that the loan can and will be repaid. Once this requirement is met, a bridge loan can move quickly at a higher loan to value and with lower rates, fees and costs. Keep in mind too, that well over 75 percent of borrowers that say they want a bridge loan really qualify only for a hard money loan. It?s very common for requested bridge loans to convert to hard money loans because the requirements for a bridge loan can not be met. So, simply because your client is not able to secure a bridge loan does not mean that the deal is dead in the water. Talk to your lending partners to understand the breadth of lending plans they offer; the best have a complete portfolio and will work with you and your client to find a loan that ultimately meets everyone?s needs. Andrew Bogdanoff has more than 35 years commercial lending experience and founded Remington Financial Group in 1993. Bogdanoff has served as the company?s president since its inception, and under his leadership, RFG has closed billions of dollars in transactions. Andy can be reached at For more information on Remington Financial Group, please visit



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