More and more people are now taking out bridge loans but a bridge loan is not always cheap and could be risky. However, a bridge loan can really be a flexible and useful source of funding that allows you to realize short-term opportunities.
Pros The major benefit of a bridge loan is flexibility. It can provide you a short-term capital that will help you meet any of your existing expense obligations, complete renovations, easily close on properties or let you look for new tenants for a building.
Moreover, the majority of bridge loans are non-recourse. This means that the lender can only ask for repayment of the loan by means of the property. You as the borrower has no personal financial obligation to pay the loan back and the lender also cannot ask for any compensation even when the value of the property cannot cover the existing loan balance.
Cons The greatest disadvantage of a bridge loan is also its appealing characteristic which is flexibility. Along with its flexibility comes steeper price tags as interest rates will also be higher compared to the permanent loans offered by traditional lenders. Since it is short-term, lenders are less flexible in terms of late payments and charge higher penalties and fees.
Aside from being costly, a bridge loan relies on take-out financings such as property sold or permanent debt. The availability of its market is not guaranteed which leads to lower returns and delays in the conversion of permanent debt.
A bridge loan is a short-term loan that can be used to a company or a person ensures permanent financing or removes current obligation. This loan is secured by real estate assets and normally required assets with positive cash flows. You can complete this loan quickly but the downside of it would be higher rates and penalty interests compared to other types of financing.