Interest rates can truly make or break an investment — especially in the world of commercial real estate that tends to deal with higher property values and loan amounts. As a result, you need to find a financing solution that offers you the best possible interest rates. In most cases, a commercial bridge loan can provide you with the favorable terms you need to make a quick and smart commercial real estate purchase.
What is a commercial bridge loan?
A commercial bridge loan is a unique type of temporary financing that is designed for commercial properties. It allows commercial property buyers to quickly and easily obtain financing for their property to make a competitive offer. From there, the term of the loan can fall anywhere between six to 18 months — during which the borrower will secure permanent financing to cover the balance of the loan and any interest that has accrued.
Why use a commercial bridge loan?
There are so many benefits to using a commercial bridge loan to finance the purchase of commercial property. Here are some of the reasons why you should use a commercial bridge loan over other types of commercial loans:
- Bridge loans come with a quick application and approval timeline that allow commercial buyers to submit competitive offers on properties and get to the closing table quickly. Being able to submit such offers is increasingly important now that the commercial real estate market is heating up in the post-COVID economic era.
- Bridge loans come with more flexibility for commercial borrowers. Oftentimes, commercial borrowers are left at the mercy of the lender when it comes to terms, repayment timeframes, etc. However, bridge loan lenders are more likely to work with borrowers to find a suitable arrangement that works for both sides.
- Bridge loans allow nontraditional borrowers to quickly and easily purchase commercial properties. For instance, foreign investors who would normally have a hard time qualifying for conventional loans can get a commercial bridge loan based on assets alone rather than things like income tax returns and W-2s.
What are commercial bridge loan rates?
While commercial bridge loan rates are based on various factors, they typically fall between 4% to 10%. For instance, if you have a low credit score or assets, you should expect to pay on the higher side of that scale. On the other hand, if you have a great credit score and substantial assets, you can expect to pay on the lower end of that scale.
However, if you aren’t satisfied with your initial commercial bridge loan rate, you can set yourself up to receive a more favorable rate — more on that later.
How do these rates compare to other types of commercial loans?
Now that you know more about the rates offered by commercial bridge loans, you’re probably wondering how they compare to the rates offered by other types of commercial loans. Let’s explore some of the different commercial real estate lending options out there to make sure that you’re getting the best deal.
Commercial blanket loan
Oftentimes, commercial borrowers own several different commercial properties. Such an arrangement can get confusing and complicated very quickly with multiple different loans and repayment schedules. However, a commercial blanket loan allows you to roll these different loans into a single, larger loan.
While such an arrangement is definitely easier for the borrower, it’s riskier for the lender since it involves multiple high-value properties that can be worth millions of dollars. As a result, commercial blanket loans often come with higher interest rates that can go up to 11%. Furthermore, it can be difficult to find a lender willing to provide this type of loan — let alone offer a favorable rate.
Commercial hard money loan
Another commercial loan option is a commercial hard money loan. This type of loan provides you quick and easy financing — at a cost. You pay a lot in interest for this type of loan, typically ranging between 10% to 18%. As a result, a commercial hard money loan needs to be paid back as soon as possible to avoid high interest rates. You might even pay more depending on the original value of your loan.
But you’re not just paying for lending efficiency — you’re also paying for accessibility. Hard money loans often come with lesser requirements compared to other types of loans. This is because hard money lenders aren’t necessarily concerned about getting their money back from payments. Instead, they know they can simply take possession of the property, sell it, and get their money back that way.
Commercial construction loan
Finally, if you’re looking to construct a new commercial property from scratch, you may want to consider a commercial construction loan. However, these loans come with shorter terms that are typically around 18 months. While the interest rates for these loans vary depending on the building type and industry, expect to pay anywhere from 5% to 10% interest.
As you can see, all of these other commercial loan options come with interest rates that are higher than those offered by commercial bridge loans — making commercial bridge loans a quick, easy, and cost-efficient lending solution for commercial properties.
How to get a lower rate on your commercial bridge loan?
If you’re looking to get a better rate for your commercial bridge loan, there are several different things that you can do:
1. Shop around with different lenders
The first thing you can do to get a lower rate on your commercial bridge loan is to shop around with different lenders for the best rate. Generally speaking, you should get rates from three to five different lenders before making your final decision. That being said, remember that rates aren’t everything, and you may end up paying more in closing costs for a lower rate. This is something that you need to consider before signing on the dotted line.
2. Negotiate closing costs and fees
Speaking of closing costs, the second thing you can do to get a lower rate on your commercial bridge loan is to negotiate down your closing costs. Bridge loan lenders are typically more flexible than traditional lenders and may be more willing to negotiate with you to reach an agreement that works for both sides.
3. Improve your credit score
The third thing you can do to get a lower rate on your commercial bridge loan is to get your finances in order before you apply. Although bridge loan lenders often have more flexible requirements and are willing to lend to those without stellar financial histories, you could end up paying more in interest as a result.
For this reason, you need to work on boosting your credit score before applying. Generally speaking, you will need to have a credit score above 700 to get the best interest rates from your lender but the higher, the better!
4. Decrease your risk
While improving your credit score can help you get a better interest rate on your commercial bridge loan, there are other things that you can do to decrease your lending risk and receive a more favorable interest rate. For instance, you can increase your cash assets to give the lender the peace of mind to use these assets to make your loan payments if needed.
You could also make a higher down payment to decrease the total loan amount, and therefore, the risk taken on by the lender. Since the lender is now giving you less money, they may end up giving you a lower interest rate that could end up saving you thousands of dollars over the term of the loan.
The final rundown on commercial bridge loan rates
While commercial bridge loans may offer more favorable rates than other types of commercial loans, you still need to do your due diligence to ensure that you’re getting the best possible rate. Specifically, you need to find the right lender that offers the best rates, and you need to get your finances in order before applying.
If you’re looking for the best rates and service for commercial bridge loans, look no further than Vaster Capital. Vaster Capital is a premier bridge loan lender that offers the flexibility and speed that commercial borrowers need to remain competitive in such a hot commercial real estate market. So before you get beat out on another deal because of financing, reach out to the lending experts at Vaster Capital for personalized advice and lending solutions.
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