6 Reasons Why Bridge Loans Are a Powerful Financing Tool

Investors run into a number of problems when trying to complete their real estate projects, from funding and timeline issues to competing with other investors in their markets. Conventional mortgage loans often don’t make the cut, as they’re bogged down by stringent qualifications and long approval times. Luckily, there is a financing solution that private lenders and brokers can offer to their clients, and that comes in the form of bridge loans. These short-term loans offer speed, flexibility, and a competitive advantage that other financing solutions can’t match.

Interested in learning more? Here are 6 reasons why bridge loans are such a powerful financing tool and why every wholesale lending partner should add them to their offerings.

#1: Speed and Accessibility of Capital

The one thing bridge loans are known for is their speed. They are designed to “bridge” gaps in a borrower’s finances, with a streamlined approach to loan approval and funding delivery. Unlike conventional mortgages, where approval can take weeks or even months, bridge loans can deliver funding in as little as 10 days. This speed helps investors secure properties in situations where speed is critical, like with auction or foreclosure purchases. It also gives investors an edge in highly competitive markets, helping them move on lucrative deals before they disappear.

#2: Flexible Underwriting and Fewer Restrictions

Another major benefit of utilizing bridge loans is their flexible underwriting criteria. Sometimes, it can be difficult to secure financing for an investment property, especially if a borrower has less than perfect credit or a unique income situation. Bridge loans focus on the asset’s value rather than a borrower’s financial history, which allows more investors, and even more types of investments to be approved for financing.

For instance, while a conventional lender may not be willing to approve a loan on a property in need of major renovations, bridge lenders will consider the property’s ARV (after-repair value) and investment return potential when approving a loan.

#3: Ideal for Fix-and-Flip and Value-Add Investments

Bridge loans are an excellent financing option for investors who renovate properties. Their short-term loan period suits the timeline of these projects better, and the loan can provide additional funds to cover renovations on top of acquisition expenses. Their flexibility also allows investors to utilize them in creative ways. For example, they can perform renovations on a multifamily property to stabilize its rental income, allowing them to secure long-term financing. Bridge loans open up more opportunities to your clients, and more ways for lending partners to provide financing for them.

#4: Bridge Loans Solve Temporary Cash Flow Gaps

Investors commonly make use of bridge loans to cover the gaps between property transactions. Let’s say your borrower has come across a great opportunity to acquire a property, but they’re still in the process of selling an existing home. A bridge loan would give them the ability to place a no-contingency cash offer on the property, while also giving them time to sell. After which, they can use the proceeds of the sale to repay the loan. While bridge loans were originally designed to help businesses deal with periods of low cash flow, investors can use them in a similar way to give them time to secure more permanent funding for a home.

#5: A Competitive Edge in a Hot Market

Bridge loans prioritize speed, and this helps give investors a major advantage in competitive real estate markets. Having access to quick funding means being able to secure deals before the competition. And for brokers and lending partners, you can position bridge loans as a problem-solving tool in time sensitive deal scenarios. This allows lending partners like you to serve a new category of investors and project types.

#6: No Long-Term Commitment

The final advantage we want to touch upon is the short-term timeline of these loans. There are many scenarios where having access to short-term funding is advantageous. These include fix and flip deals, value-add opportunities, and auction/foreclosure purchases, among other cases. While mortgage loans are great for standard home purchases, not every deal is suited to a 15 or 30-year term. Fortunately, the lenders that offer bridge financing programs are more willing to tailor loan terms to fit the specific needs of each project, without requiring a long-term commitment.

RCN Capital

The best way to save on a real estate investment is to obtain financing from a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to offer bridge loan programs to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.