What are they?

The term “bridge loan” is in common use in commercial and residential investment lending.  A bridge loan is a short term loan, typically with a maturity of between one to three years.  More traditional loans like ones funded by life insurance companies are typically funded with a 10 year or longer maturity while bank loans normally have a five year maturity. Bridge loans are normally funded by hard money lenders using private capital.  While bank and life company loans are amortized over a 15 to 30 year period (depending on the lender) bridge loans normally are funded with interest only payments so that the monthly payments do not include any principal.  This makes the monthly payment less burdensome on the borrower’s cash flow.

Why are they useful?

Bridge loans are used for two main reasons:

1. The borrower is buying a property with the intent to sell it within the next 2 to 3 years and doesn’t want to borrow money where they are locked in to a long term loan through onerous prepayment penalties which makes it financially impracticable to pay them off prior to maturity.
2. The borrower needs to act quickly to close a purchase and banks or life companies cannot meet the closing deadline.  Hard money (private capital) lenders are able to close very quickly but normally are only willing to fund bridge type loans as opposed to longer term loans.

How do I find one?

First, check with your bank.  If they are willing to do the loan then they will offer the lowest interest rate.  However if the bank will not fund your loan then you need to locate a reputable hard money lender.  A good way to do this is to talk to trusted advisers such as attorneys, accountants, personal bankers, or real estate brokers and see if they can refer you.  Another way to proceed is through searching the internet.  There are many advantages to work with a lender based in your area as opposed to some out of state lender.   As opposed to typing in a phrase such as” hard money lender” in a search engine it is better to try to geo-target an area.  For example, putting the phrase “Colorado hard money lender” in the box as opposed to “hard money lender” will result in the search engine showing local lenders at the top as opposed to out of state companies.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.