Sometimes, investors don’t have all the time in the world to secure financing from traditional loan lenders. Submitting endless documents or paperwork, waiting for traditional lenders such as a bank to ratify your loan application may not go well with some businesses in a competitive market where you require to move quickly.
Private bridge loans are financial products that enable investors to borrow large amounts of money when they expect to secure capital from the sale of an existing property shortly, while they need money right away. Aggressive house flippers and those eying the next deal may use private bridge loans to avoid liquidity challenges.
Private bridge loans are related to hard money loans in that both are asset-based; the private lenders measure the loans basically by the collateral given. While interest rates for private bridge loans are usually high, the short approval period makes these loans an attractive option for investors.
Business people may also need private bridge loans to cater to immediate capital requirements such as cost of goods or payroll. Also, when a family wants to relocate or switch homes and is yet to dispose of their existing home, they may opt to secure a private bridge loan and clear the loan after selling their current home.
Conventional loans from lenders can take up to 60 days, while private money lenders can approve loans in a week. Once the finances are secured and the house bought, the buyer is at liberty to refinance with a conventional bank loan.
Another advantage of a private bridge loan is flexibility. Often, buyers get rejected by traditional lenders because the building failed to fit a ‘perfect lending’ criterion. Banks and Investors may look at the same deal and arrive at two varying conclusions. Private bridge lenders do not have inconsistent lending criteria courtesy of asset-based lending.