As a third-party originator or wholesale lender, taking your customers to the right loan solutions is crucial to expanding your business and enabling investors to be successful. While fix-and-flip loans and long-term rental loans are popular options, short-term bridge loans offer a flexible, convenient, and speedy option for customers requiring interim funding.
At RCN Capital, our short-term bridge loan program is intended to assist investors who need short-term financing while they complete their long-term investment plan. In this guide, we will discuss the benefits and considerations of bridge loans, assisting you in deciding when this product is the most suitable for your clients.
What is a Short-Term Bridge Loan?
A short-term bridge loan is a funding solution that generally has a 12 to 36 months term, which gives investors some time to settle down on their investment plans. It's a great choice for clients who wish to keep a property temporarily before refinancing into a rental loan, making small repairs, or tapping existing equity for a cash-out refinance.
Bridge loans provide access to capital immediately without a long-term obligation, and it is an important tool in your lending arsenal to support clients that require rapid funding.
When to Recommend a Short-Term Bridge Loan
Being able to know when to suggest a short-term bridge loan makes you a savvy and resourceful lending partner. Below are three typical situations where this product serves your clients well:
- Clients Who Need Time to Secure Long-Term Financing
Investors often need immediate funding to acquire a property but may not be ready for long-term financing. A bridge loan allows them to purchase a property, generate cash flow, and later refinance when market conditions or personal circumstances are more favorable.
- Clients Planning to Improve a Property Before Refinancing
If a property needs minor renovations or operational improvements before securing long-term financing, a bridge loan can be an excellent interim solution. While major rehab projects may require fix-and-flip loans, bridge loans provide capital for smaller improvements that can increase rental value or resale potential.
- Clients Looking to Tap Into Existing Equity
Investors with substantial equity in a property can use a bridge loan to unlock funds for additional investments, leveraging current assets without waiting for a long-term refinance.
Key Benefits of Bridge Loans for Brokers and Wholesale Lenders
Offering bridge loans can significantly enhance your business. Key benefits include:
- Fast Closings: Bridge loans can close in a matter of days, allowing investors to move quickly on opportunities.
- Competitive Commissions: These loans offer attractive commission structures for brokers.
- Flexible Loan Terms: With terms ranging from 12 to 24 months, bridge loans give borrowers breathing room before transitioning into long-term financing.
- Diverse Client Applications: Whether for residential or commercial deals, bridge loans cater to various investment strategies.
Pros and Cons of Bridge Loans for Your Clients
Pros:
- Flexibility in Investment Strategy: Clients can explore different exit strategies without committing to long-term financing prematurely.
- Quick Access to Capital: Ideal for investors who need immediate funds for time-sensitive deals.
- Leverage Equity for Additional Investments: Clients can unlock existing equity and reinvest without selling their current assets.
- Opportunity to Improve Property Value: Short-term holding periods allow for value-added improvements before refinancing.
Cons:
- Higher Interest Rates: Bridge loans generally have higher rates than traditional 30-year rental loans.
- Prepayment Penalties: Some bridge loans have early repayment restrictions, requiring clients to plan accordingly.
- Shorter Loan Term: Investors must have a clear exit strategy since these loans mature within 1-3 years.
How Brokers Can Maximize Bridge Loan Opportunities
Positioning bridge loans effectively can strengthen your client relationships and expand your business. Here’s how:
- Educate Clients on Strategic Uses: Help clients understand how bridge loans fit into their investment roadmap.
- Leverage Bridge Loans for Repeat Business: Short-term financing creates opportunities for long-term relationships as clients refinance or purchase additional properties.
- Work with a Reliable Lender: Partnering with RCN Capital ensures you have a trusted source for bridge financing with competitive terms and responsive support.
Final Thoughts
Short-term bridge loans offer a valuable solution for investors needing temporary financing while finalizing their long-term strategy. For brokers and wholesale lending partners, understanding the nuances of this loan product can help attract more clients, close deals faster, and build a robust lending business.
If you want to diversify your product and serve your investor customers more effectively, consider adding RCN Capital's short-term bridge loans to your product portfolio. Reach out to our team today to discover more about our wholesale lending products and how we can help your business grow.