The Ultimate Guide to Bridge Loans for Real Estate Brokers

Bridge loans are a powerful financing tool investors can use to their advantage, helping them secure properties when traditional loan options don’t make the cut. These short-term loans offer unmatched speed and flexibility which can unlock more opportunities for investors, and a wider range of deal types. As a broker or lending partner, offering bridge loans lets you provide a variety of financing solutions to clients, and positions you as a flexible loan provider.

Have you been considering adding bridge financing programs to your loan offerings? Continue reading for everything you need to know, including how they can help you grow your business.

What Is a Bridge Loan?

Let’s start by breaking down the basic terms of a bridge loan. Unlike conventional mortgages, these are short-term, asset-based loans which range from 6 to 24 months in duration. They are designed to help “bridge” gaps in an investor’s finances, such as with acquiring a new property before selling an existing one. Their shorter timeline makes them ideal for quick projects like home flips as well. Being asset-based means that bridge loans are backed by collateral, and that allows loans to be approved faster, which is key in time-sensitive deal scenarios. It also means that a borrower’s credit is less important in loan approval, giving investors more flexibility.

Key Features of Bridge Loans

Bridge loans have a few key features that offer investors a competitive advantage. They enable investors to make all-cash offers on properties, and they can repay the loan once they have more permanent financing in place. Their shorter term can be customized to fit the timeline of any project, and lenders are willing to lend on a wider range of deals, but that also means the borrower must have an exit strategy in place before the end of the loan period. As a result of the added risk, bridge loans typically have higher interest rates than their long-term counterparts.

Asset-based loans offer borrowers a way to obtain financing even if they have less than stellar credit, or non W-2 income. Lenders use the property being financed as collateral to secure the loan, which means they have less stringent application criteria, and deals can be funded faster. Loan applications can be approved with funds delivered in a matter of days, while conventional mortgages can take weeks or months for loan approval.

Why Brokers Should Know Bridge Loans Inside and Out

While bridge loans can be an incredibly handy financing tool, they are only as useful as the deal scenario they’re used for. Understanding when to make use of bridge loans is one of the key insights you can provide as a lending partner, with your expertise offering added value to clients. It allows you to position yourself as an expert in all things real estate finance, opening the door to long-term client relationships and repeat business. If you want to learn more about this powerful financing tool, RCN Capital offers a free partner training platform called Amplify, with in-depth education modules on financing programs like bridge loans.

How to Match Clients with the Right Bridge Loan Program

So, what are the criteria for determining when a client should use a bridge loan? You will need to take time to determine what their investment goals are, the project timeline, and evaluate their risk tolerance and exit strategy. Bridge loans are intended for short-term investments like home flips, value-add projects, and acquiring properties before selling an existing one. You will need to gauge how comfortable your client is with short-term projects like these. Ideally, they should have experience with home flips or real estate renovation work, if applicable.

You should not recommend a bridge loan to a client if they don’t have a clear exit strategy, or if their timeline doesn’t fit a 6-24 month loan period. It’s also important to determine if the borrower’s financial profile can support a short-term loan with a balloon payment. If they aren’t comfortable with an elevated interest rate, they may be better off with a long-term financing solution.

How Bridge Loans Can Grow Your Business

Adding bridge loans to your loan product offerings opens the door to more clients and deals. They help you differentiate yourself from other brokers by having multiple types of loan offerings, ranging from short to long-term solutions. It also lets you fund a wider range of deal types, so you can work with a larger variety of investor clients. The borrowers who do use bridge loans often specialize in short-term deals, which means multiple investments transactions per year, and a great potential for repeat business. Plus, working with wholesale lenders to fund deals lets you build strategic partnerships, which can get you access to benefits like a streamlined loan process, and real estate lending resources.

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 professionals. If you are looking to offer bridge financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.