Private Money Lenders Bridge Economic Financing Gap

Many hard money lenders can offer more flexible types of loans and terms than traditional banking institutions. Government laws heavily regulate banks, which is why the lending industry has seen such a drastic reduction in the number of completed borrower loans.

Many hard money lenders offer bridge loan financing, which helps fill an interim gap when borrowers are in need of funding properties. This type of loan is also known as a swing loan, gap financing, interim financing or short term financing. Bridge loans are designed to help bridge the gap between a borrower’s current lending situation and lining up more advantageous future investments. For example, this allows a borrower to finish up an existing project, while working on purchasing the next project, making sure there are no project gaps.

Typical banking lenders evaluate borrowers based on three main categories, which includes timing, cash flows and risk. If a borrower does not meet the requirements of each category, then a lending institution is typically not comfortable providing a loan. To not meet a lender’s requirements in today’s economic times is not uncommon. In fact, many lenders are turning down commercial retail locations that simply aren’t penciling with cash flows. Gap financing allows a lender to come into a project, turn it around to make it more profitable and then refinance the property through a traditional bank, with more affordable long-term interest rates.
Gap financing also allows real estate investors to act quickly on a solid investment once it comes on the market. Traditional banks can take between 30 to 60 days to close a non-complicated, basic loan. Bridge financing options allows investors to close within days, helping secure properties at better prices during the negotiations. This is especially true with sellers in today’s market, as long closings can be subject to difficulties, including underwriter rejections. Fast closing means sellers receive their monies sooner and with less stress and difficulties.

Bridge loans are only used for an average of six months to three years, simply until more conventional financing options can be obtained. These types of loans are excellent for developers and real estate investors.
During hard economic times and a real estate market that has burst, the industry is trying to regain its footing and make real property ownership more affordable. In doing so, hard money lending has attempted to fill the financing gap, helping real estate investors add value to local communities by developing properties and remodeling foreclosures into once again livable residences.

Hopefully the future holds less stringent government regulations for the banking industry, which will ultimately afford real estate investors more lending opportunities, thus helping the volatile real estate market become strong once again.