A hard money bridge loan is a kind of hard money loan that is often utilized in commercial or residential real estate transactions to serve as a bridge or a stopgap measure during certain situations and then it is promptly repaid after certain things have happened. The most common situation when this type of loan is used is when a bank loan will take too long to be processed and the borrower has a time limit in completing a transaction. Another possibility is when the borrower wants to save a property from foreclosure and expects his or her financial situation to improve soon and as soon as this occurs, the bridge loan is repaid. A hard money bridge loan is usually provided by a private company, individual or investment pool instead of a bank.
The interest rate for a hard money bridge loan is usually much higher than that offered by banks and the term is usually one year although a certain kind of this loan does not have a specific payoff date. For residential properties the amount of the loan does not usually exceed 80 percent of the property’s value and for commercial properties, the maximum loan-to-value ratio is often 65 percent.
A hard money lender may provide a bridge loan to a developer during that period when the permit is still being processed so that conventional loans are not yet available. After the permit is approved, the developer will be able to get a loan from a bank for lower interest rates and repays the bridge loan. In the case of a residential property, a hardmoney lender may be needed by a homeowner who has to make a down payment on a new home but the money from the sale of the existing home is not yet available. The loan is promptly repaid after the money from the sale of the current home is finally on hand.
A hard money bridge loan may also be used for a business during that period when a senior shareholder wants to leave. A bridge loan is taken based on the value of the real property where the business is located so that the departing partner could be paid until such time that a new major shareholder could be located. Finally, this kind of loan becomes important when the buyer of a property wants to take advantage of a discount that would only be possible if the deal is closed quickly.