The bridge loan financing process is required in circumstances where a transaction exists that requires capital and the completion of the transaction will provide the means to repay the bridge loan advance.
There are all sorts of different types of transactions that can require bridge loan financing, but they will all have certain things in common.
First, there will be a concrete beginning and ending point. This can be established by a hard date, or a sequence of events. Typically, the transaction timeline from beginning to end is weeks or months at the the most.
Second, the amount of capital that will be required to complete the transaction is well laid out and clearly is sufficient for the purpose outlined.
Third, there is a source of funds, either in the margin of the transaction, or from another source, that is sufficient to pay the agreed upon cost of financing associated with the bridge loan.
Fourth, the transaction provides something of value that can be leveraged for security such as hard assets, intellectual property, purchase orders, and so on.
Fifth, the transaction will not typically commence unless the bridge loan financing is in place. Once in place, a proof of funds acceptable to the seller may need to be provided by the buyer to confirm that the capital required to complete the transaction is not only secured but will be paid to the seller upon completion of certain requirements.
When real estate is being used as the hard security for a transaction, the transaction can involve the purchase of real estate, or before something completely unrelated to real estate.
This is where private mortgage financing on real estate owned can be such an effective source of bridge loan financing.
A private mortgage lender may want to know what the use of funds from the private mortgage is, but in most cases the actual usage will not dictate whether or not a bridge loan is authorized or not. This provides a property owner holding an equity position with an ideal source of asset based security to support a wide variety of potential transactions that require a short term source of capital.
Private mortgage financing, because of the high quality of security being offered, also tends to be one of the most cost effective forms of bridge loan financing as well.
If you’re in need of capital to fund a transaction and what to better understand your bridge loan financing options, I suggest that you give me a call so we can review your situation together and discuss potential bridge financing solutions that meet your requirements.