A commercial bridge loan is basically an interim loan acquired by a business entity to “bridge” the gap between urgent and immediate capital needs and the arrangement of permanent and conventional long term financing. In order to qualify for these types of conduit loans, the lender will ensure that the borrower has a definite “exit” strategy to pay off the loan. Without an exit plan, the borrower will not be considered for the loan as lenders will be in too much of a risk. This type of loan is referred to by many mortgage professionals as a “swing loan.”

The pay-off strategy, of course, will depend on the type of commercial bridge loan obtained. There are different types of commercial bridge loans. A commercial property bridge loan, for example, is obtained to purchase new property and in order to pay off the loan, the borrower normally eyes the selling of an old property. Businesses can be provided assistance to accomplish their goals while in process of securing permanent financing.

A commercial construction bridge loan’s purpose, on the other hand, is to supply interim financing for a construction project (new or improvements on existing) where the exit strategy will perhaps be property sales, business sales improvement, or improved or new rentals. This is similar to a fractured condo commercial bridge loan in exit strategy but the purpose is merely to obtain interim financing while looking for unit buyers. Recently, the SBA (Small Business Administration) introduced America’s Recovery Capital Loan (ARC Loan) in order to provide small business enterprises short-term funds during the recession.

From SBA: “If your small business is stressed meeting expenses during these economic times, the U.S. Small Business Administration has a new loan program designed just for you.

SBA’s America’s Recovery Capital Loan Program can provide up to $35,000 in short-term relief for viable small businesses facing immediate financial hardship to help ride out the current uncertain economic times and return to profitability.  Each small business is limited to one ARC loan.”

As is the rule, with a shorter loan payment term, interests for a commercial bridge loan are about 3-4% higher than conventional loans. Terms typically range from 6 months to 2-3 years and there is no prepayment penalty. It is also fairly easy to obtain a bridge loan because of lesser documentation. If you do have resources for long-term financing, and you are not willing to take the risk of paying higher interest rates, it will be better to go for a conventional loan.

However, these loans can be used for a variety of reasons and different companies will offer a variety of options for the borrower to choose from. Rates will also vary from lender to lender and it would definitely be wise to do some intense research before choosing who to go with.

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