Why Bridge Loans Belong in Every Broker’s Toolkit

Investors often run into roadblocks when they need to secure financing for a real estate deal, whether it be timeline issues or a property that banks are not keen to lend on. Luckily, there is a solution that investors can turn to for fast, flexible funding, and that comes in the form of bridge loans. These loans offer borrowers a quick turnaround and less stringent guidelines, which opens the opportunity to invest in more projects. As a broker or lending partner, adding bridge loans to your product offerings lets you help your clients close more deals, and you too can benefit from the added business.

Read on as we cover the basics of bridge loans, how they offer brokers a competitive edge, and how you can introduce them to your existing client base.

What Is a Bridge Loan (and How Do They Work)?

Bridge loans are short-term, asset-based funding solutions provided by private lenders rather than traditional lending institutions like banks or credit unions. Bridge loans are backed by assets as collateral, which means they have less stringent qualification criteria, and can be used to fund a wider range of deals. For instance, they can fund fix-and-flip investments, value-add projects, or just finance acquisitions while waiting for the proceeds from a sale. Bridge loans offer investors several advantages including speed, shorter terms, and flexibility, such as interest-only payments until the end of the loan period. They are also beneficial in time-sensitive scenarios like with acquiring foreclosure properties, since they can be approved much faster than conventional mortgage loans.

The Competitive Edge for Brokers

Brokers like you can benefit from adding bridge loans to your product offerings because it allows you to close more deals. Not only does it open the door to short-term investments like home flips, but having a quick-close financing product is key in helping clients win deals in competitive markets. Additionally, banks may not be willing to lend on homes that need major renovations, as they view these investments as too risky. Bridge lenders, on the other hand, have less objections when funding these types of deals. Finally, for clients who may not qualify for conventional financing, bridge loans offer an alternative path to funding projects, since lenders are more focused on the financials of the deal than the borrower’s personal creditworthiness.

When to Use Bridge Loans

Bridge loans are an ideal financing solution in a number of investment scenarios:

• Purchasing Property Before Selling An Existing Home: Imagine your client has come across a great deal on a property that they want to acquire, but they’re in the process of selling an existing home. A bridge loan allows them to move forward with the purchase, and then repay the loan once they have the available funds.
• Closing Deals Quickly: With a streamlined application process, a bridge loan can be approved with funds delivered in as little as 10 days. This can be a huge advantage in competitive markets, but also for time-sensitive investments like auctions or foreclosure properties.
• Fix-and-Flip Investments: Unlike conventional mortgages, bridge loans can finance both acquisition and renovation costs, which makes them ideal for fix-and-flip investments. Their shorter timeline is also more suitable for the length of these projects.
• Value-Add Projects: Bridge loans can be used to make upgrades to existing properties in your client’s portfolio. For instance, they can make improvements to a multifamily property they own to increase its cash flow, allowing them to secure more permanent funding for it.

How to Introduce Bridge Loans to Clients

Understanding how and when to recommend bridge loans to your clients is one of the key roles you will play as a financing partner. These loans have some major benefits and are useful in the situations outlined above, but it’s also important to highlight the differences between bridge loans and conventional solutions. First, it’s important to note the shorter timeline of these loans, and that this often means they come with elevated interest rates when compared to traditional mortgages. It also means that it’s crucial your client has a solid exit strategy for the property being financed, whether it’s selling or refinancing with a long-term loan.

By making sure your client understands these key differences, you position yourself as a comprehensive resource for investment solutions, not just another loan originator.

Partnering with the Right Wholesale Lender

It’s important you select the right wholesale lender to partner with, since it can affect the level of service you provide to your clients. Look for lenders who understand the needs of investors, and have strong experience in the real estate space. A quality lender will prioritize responsiveness and speed, and be able to tailor loan terms to meet the specific needs of a project. Ideally, you’ll want to partner with a lender who can go above and beyond, providing you with marketing materials to enhance your business. They may even be able to connect you with other industry professionals like contractors or tax professionals, which you can refer to your clients to help facilitate their deals.

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 provide bridge financing programs to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.