A bridge loan is a short term interim loan used until securing a permanent financing or removing an existing obligation. It is a loan to bridge the gap between the termination of one mortgage and the beginning of another. A bridge loan is also known as a swing loan. The loan allows a customer to meet current obligations by providing immediate cash flow. Individuals and corporations are equally benefited from bridge loan. Individuals use this facility to bridge the time period between buying a new house and selling the prior one. A company doing a round of equity financing expected to close in a short time can use a bridge loan to secure working capital until the round of funding goes through. A bridge loan is a short-term loan that provides interim (in-between) financing for businesses and personal use. They are often taken out in medium to higher amounts for periods ranging anywhere from a few weeks to a few years. They help the person or business stabilize financially until the find a more permanent source of financing or until the business is able to build its capital up. Once the business or person is able to progress financially, they may use their new financing or profits to pay back the bridge loan. Thus, in the long run, bridge loans can sometimes provide better options and more success. In a real estate setting, a bridge loan can sometimes be used to help close a deal, or to prevent foreclosure.
Utah Bridge Loans
• In bank/bond deals, the bank loan lenders agree to provide a bridge loan if the borrower cannot issue the high-yield bonds on the closing date. The bridge loan is repaid with the proceeds of the high-yield bonds when they are issued at a later date.
• In venture capital investments, the existing venture capital investors agree to provide a bridge loan of convertible notes if the company requires additional cash before it can close the next round of financing with new third party investors. The bridge loan is often accompanied by an equity kicker to compensate the investors for providing the financing, either in the form of a discounted conversion price or a warrant. On the closing of the next round of financing, the bridge loan converts into the securities issued in the new round of financing (typically a new series of preferred stock) and any warrants are exercisable for the new securities at the price per share paid for the new securities.
Characteristics of Bridge Loans
Bridge loans sometimes have the following characteristics:
• Shorter/easier approval steps (since the loan is often paid back in a short amount of time)
• May be associated with higher monthly/term payments
• May be associated with higher interest rates
Bridge loan terms can vary according to the lender’s offers, and according to the amount of risk involved (bridge loans can sometimes be associated with a risk of default by the borrower).
Difference between a Bridge Loan and a Hard Money Loan
Hard money loans are loans that are backed by property (either residential or commercial). Both bridge loans and hard money loans are similar in that they’re both typically sought in a pinch or during hard financial times. They can also both be associated with less strict, informal lending approval processes. On the other hand, hard money loans generally focus on the fact that the borrower has put up property interests as collateral for the loan. Bridge loans focus on the shorter duration and the specific purpose of the loan for reaching longer term goals. Bridge loans may or may not be backed by property like hard money loans are. Bridge loans can be associated with various legal conflicts, including: cases of lender or borrower fraud; breaches of contract; default/non-payment, and various other legal issues. In such cases, these disputes can lead to lawsuits for damages, fines for statutory violations (for the lender), and negative effects on credit scores. In such cases, a legal investigation into the matter may be necessary, especially if the dispute is widespread among a larger consumer base.
Advantages Of A Bridge Loan
Companies can generally more easily qualify for a bridge loan than for more long-term financing options. Lenders involved in the bridge loan industry understand that bridge loans simply provide gap financing and are not long-term solutions for the businesses, which means companies are generally more willing to pay a higher interest rate or higher loan origination fees. Bridge loan lenders customize bridge loans to suit a variety of different needs for businesses. The whole idea behind a bridge loan is that it is easy and quick to obtain, unlike a traditional long-term commercial loan.
Disadvantages Of A Bridge Loan
Bridge loans are expensive. It is a universal truth in the financing industry that the quicker company can access money, and the easier it is for the company to qualify for the money, the higher financing costs the company will pay. Just as a payday loan carries a much higher interest rate than a long-term mortgage or auto loan, so too does a bridge loan carry much higher financing charges that a more conventional long-term loan. The higher financing costs explain why companies use bridge loans as only a short term solution, instead of as a long-term financing tool.
Prepayment Of A Bridge Loan
Another benefit of a bridge loan for a company is that the company can generally pay off a bridge loan at any time without a prepayment penalty. This is different than most commercial mortgage loans, in which the borrower might pay a significant penalty for paying off the loan early. Bridge loans generally carry no prepayment penalty, which makes them a flexible option for companies looking to obtain a long-term loan.
How Do Bridge Loans Work?
Some lenders who make conforming loans exclude the bridge loan payment for qualifying purposes. The borrower is qualified to buy the move-up home by adding together the existing mortgage payment, if any, on their existing home to the new mortgage payment on the move-up home. Many lenders qualify the buyer on two payments because most buyers have existing first mortgages on their present homes. The buyer will likely close on the move-up home purchase before selling an existing residence, so the buyer will own two homes, but hopefully only for a short period of time.
Average Fees for Bridge Loans
Rates will vary among lenders and locations, and interest rates can fluctuate as well. For example, a bridge loan might carry no payments for the first four months, but interest will accrue and come due when the loan is paid upon sale of the property. There are also varying rates for different types of fees. The administration fee might be 8.5% and the appraisal fee might be 4.75% on a $10,000 loan. Certain fees will be charged at a higher rate than others.
Bridge loan fee examples based on a $10,000 loan include:
• Administration fee: $850
• Appraisal fee: $475
• Escrow fee: $450
• Title policy fee: $450+
• Wiring Fees: $75
• Notary fee: $40
There’s typically a loan origination fee on bridge loans as well. The cost is based on the amount of the loan, with each point of the origination fee equal to 1% of the loan amount. Generally, a home equity loan is less expensive than a bridge loan, but bridge loans offer more benefits for some borrowers. And many lenders won’t lend on a home equity loan if the home is on the market. You can fund a down payment for the move-up home in one of two ways if you don’t have the cash for a down payment and your existing home hasn’t sold yet. You can finance a bridge loan, or you can take out a home equity loan or a home equity line of credit. In either case, it might be safer and make more financial sense to wait to sell your existing home first before buying your next home. Ask yourself what your next step will be if your existing home doesn’t sell for quite some time. You’ll be financially supporting two residences for the duration. The main advantage of a bridge loan is that it allows you to avoid a contingent offer along the lines of, “I’ll buy your home if my home sells. But this is generally only advisable if you’re sure your home will sell, or if you have a plan in place in case it doesn’t.
Characteristics Of Bridge Loans
Bridge loans constitute a specialized form of lending designed to meet immediate cash needs without having to go to a bank. Needless to say that not all bridge loans are offered under the same terms and conditions. Like anything else in financial services, loans vary from one lender to the next.
• They Are Short-Term: Also known as hard money loans, bridge loans are purposely short term. A typical bridge loan is made for no more than one year. But one year is on the high side in this business. Most lenders offer loans for just six months and then charge higher fees for it.
• They Can Be Rather Sizable: Bridge loans for business are designed to meet extensive capital needs that banks are unwilling to look at. As such, a loan can be rather sizable.
• They Are Backed by Collateral: The fact that bridge loans are required to meet immediate cash needs suggests that a borrower’s cash flow is insufficient for said needs. That means lenders require some sort of collateral to protect their investment. For example, consider a builder looking to acquire a new parcel of land for development. The client might offer an existing parcel of land and its buildings as collateral.
• They Are Great Equity Financing Tools: One of the more common uses for bridge loans is that of supporting equity financing. A company might apply for a hard money loan with the goal of using the cash to cover inventory, payroll, rent, and other expenses until sufficient equity funding is raised. This allows the company to begin operating or continue operating in some cases before the next round of funding is secured.
• They Can Be Easier to Get: This final characteristic is that which separates private lenders like Actium Partners from traditional commercial banks. Where banks often require clients to jump through hoops during the application process, private lenders are a lot easier to work with.
A bridge loan from a private lender is not necessarily the best way to raise cash in every case. But in cases where it is appropriate, a bridge loan is quite often the best option. Bridge loans provide for immediate cash needs among companies looking to expand, or to provide funds until the right amount of equity can be raised.
Advantages Of Hiring Professional Lawyers In Loan Modifications Problems
There are many homeowners who are facing the problem of their existing mortgage monthly payments. Therefore, they are heading towards loan modification alternative to change existing mortgage loan repayment schedule. In that situation a loan modification lawyer and specialist will guide you to manage your existing mortgage loans according to your requirements. They will modify and change your existing loan plan to another one which will suit to your needs and requirements. Usually people get loans from the financial institutions but sometimes they feel trouble with rules of existing mortgage plans because of many factors whether it is a personal problem or financial problem. In that situation, a professional lawyer will make you feel relaxed by guiding you the process of modifying your existing loan properly in favor of your needs.
It is not mandatory that you have to hire a professional lawyer in order to continue loan modification process. However, people hire lawyers to get some legal advice and assistance. There are many other reasons that make hiring experienced lawyer for loan modification essential. All you need to make your own requirements list for modification and then search over the web best lawyer who will guide as well as help you properly in the process of loan modification. You wonder to know that why you need to hire any professional lawyer before heading to modify your existing loan.
• You will not easily deal with lenders because of two reasons: First you will get different answers from each agent of lender. Second it is not necessary that all agents will be equipped with tools to assist you in modification process. Therefore hiring loan modification lawyer will surely help you in getting the best deal of loan modification.
• Loan modification lawyers understand your requirements and needs properly and review your entire case from a perfect legal perspective. They know how to deal with the lender and help you create the application so it processed efficiently.
• Even in some cases lender takes your request an application more seriously if you have loan modification lawyer on your side. As lawyer uses legal terms and information as leverage while negotiating with lenders. It means you will get the best deal if you have a lawyer on your side without any difficulty.
• Another important factor is keeping you safe from being cheated or misguided by any lender. You can defend yourself easily while you are negotiating with lenders having the assistance of professional and experienced loan modification lawyer.
• In some cases you will be forced to roam around in the lender office from one department to another department without any progress. It means it takes your valuable time without any progress. With the assistance of loan modification lawyer you can easily foreclose proceedings. Even your loan modification lawyer will continue your proceedings on your behalf.
• Finally, you will be safe and secure by hiring a professional lawyer. A professional lawyer would surely help you modify your existing mortgage loan.
Utah Bridge Loan Lawyer
When you need legal help with a hard money loan or a bridge loan in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506