Posts Tagged ‘Finance’

Things You Need Know About Bridge Loans

Tuesday, March 27th, 2012

This type of business financing is very aptly described by its name, Bridge loans or Bridging loans. This type loan is not a permanent or even long term loan. It is exactly as stated, a bridge between now and when the long term financing is in place. In general, bridge loans are taken out for a maximum of 3 years awaiting long-term or larger financing. The loan’s purpose is only to cover the interim period until the more permanent financing can be arranged. Once the new financing is obtained, the money will be used to pay back the bridge loan.

Bridge loans have a higher interest rate than conventional loans. It is not uncommon for lenders to require cross-collateralization in addition to designating a low loan-to-value ratio in order to lower their risk. However, bridge loans are able to be arranged quickly and do not require a massive stack of paperwork.

Bridge loans are frequently used in real estate purchases to quickly close on property, take advantage of a short-term opportunity, or retrieve an estate from foreclosure. When the property is sold or refinanced, the loan is typically paid back.

Bridge loans are similar to hard money loans as both are not traditional and obtained for unusual circumstances or emergencies. The major difference is that hard money refers to the source whether an individual, private company, or investment company. Bridge loan references the duration of the loan.

The interest rate of a bridge loan is generally 12-15% for a maximum of 3 years. For commercial properties, the Loan-to-Value ratio does not exceed 65% and 80% for residential properties. Loans can be issued on a closed or open timeframe for payoff.

Banks do not typically offer real estate bridge loans because of the high risk and lack of documentation which does not meet the industry’s lending criteria. A bank would have difficulties justifying its lending practice to government regulators and investors if it issued bridge loans. Therefore, most bridge loans are generated from individuals, businesses, and investment pools.

Bridge loans are used in corporate finance and venture capital as well. They can infuse small amounts of cash to carry a company through consecutive major private equity financings. In addition, they can assist a distressed company while search of an acquirer or larger investor. If a company is being sold, a bridge loan can finance final debt before it is publicly offered.

Lone Oak Fund is a private mortgage fund larger than many banks that makes bridge loans typically ranging from $500K to $12.5M on commercial and residential properties located throughout Southern and Northern California. Founded and managed by experienced real estate developers, Lone Oak Fund is the preferred lender for professionals seeking fast, reliable bridge financing for their clients, while providing an additional profit center.Since its inception in 2002, Lone Oak Fund has become one of the largest and fastest growing private bridge lenders in California. The fund is supported by the financial strength of its 400 plus members, including high-net-worth individuals, institutions, and pension funds, with over a billion dollars in loans funded.

Reasons for Bad Credit Loans

Friday, May 6th, 2011

With the World recently emerging from recession it is more difficult than ever to get credit. There were many people who had a bad credit rating before the credit crunch and the legacy of the global financial crisis for them is a poor credit report. But with every piece of bad news about the recovery there is also some positive news. Bad credit loans offer customers a way to obtain credit in circumstances where their bank or mortgage providers have said no. Bad credit loans may seem daunting but they really can help.

People want money for all the same reasons they did before the crisis and there is still a high demand for loans. The problem is that the banks are less likely to lend and they are more risk averse since it was through lending and the trading of ‘toxic’ debt finance that got them into the mess in the first place. However, for consumers the picture is getting brighter as smaller companies are taking advantage of this and offering customers the products which the big banks are holding back. The downside for a borrower are the extra expense. There is also more risk involved and because the lending organisation are smaller and do not have the luxury of economies of scale; because of this the borrowing is more costly.

There are some people who have not felt the hit of the financial crisis in such an acute manner and still have expendable income which they can use for borrowing for anything from holidays to new cars or money to renovate a home. Home renovation is also an important area for borrowing at the moment as the housing market has bottomed to such an extent that the only way is up. In addition, assets such as land and corporate property are a sensible thing to spend your money on at the moment with the economy in the state that it is. It would seem that despite the financial meltdown, the US economy has rallied to create a solution in the form of smaller lenders to the problem that Americans will always want to spend money and this often means borrowing money.