Andrew Jubelt

One of the most frequently-forgotten things in real estate is that pieces of property are valuable, especially if they're in an active business district.

That, of course, is the problem. The larger a loan is, the more scrutiny any lending institution will require -- and if you aren't paying for the entire thing out of your own pocket, you'll have to limit yourself to the bank's pace as you process the paperwork. If someone else is also interested in the property, you could find yourself losing out simply because the paperwork takes so long to complete.

Bridge loans are the easiest and most effective way of overcoming this. At their core, bridge loans exist to cover the gap while long-term financing is arranged.

The Fast Facts

How Bridge Loans Can Affect Your Credit Score And Loan Amounts

Due to their short-term nature, bridge loans require significantly higher payments than other types of loans. If you have a solid amount of cash as a cushion, this can be excellent for your credit score, as consistently paying a high amount will help financial institutions regard you as more trustworthy.

In fact, the history of payments made under the terms of a bridge loan may allow you to qualify for a larger loan -- and with the prices of some types of commercial real estate, this can make the difference between getting the property you want and being forced to purchase a different location instead.

Why Bridge Loans Make Sense For Commercial Real Estate Transactions

Bridge loans have two major advantages over most other forms of money-lending: they're easy to get and they can be obtained quickly. As discussed in the introduction, this makes bridge loans ideal when you're trying to obtain a specific piece of property, especially if you have a narrow deadline for doing so.

It's also worth noting that bridge loans are often used to finance improvements to a given piece of property. For example, a bank may refuse to lend money to help purchase an old building with worn-out wiring, but once a thorough renovation has been performed and the building is no longer seen as unsafe, that same bank may be more than willing to extend an offer.

Which Types of Businesses Benefit Most from Bridge Loans?

As with all forms of lending, businesses that have a stable and reliable source of income are most likely to benefit from a bridge loans. Smaller businesses, or those with uncertain income levels, may have trouble meeting the large payments that bridge loans require.

However, this is only a general problem, and a solid business plan may be able to remove most of the disadvantages. It should not be forgotten that the main goal of a bridge loan is covering the gap between right now and when you can secure traditional, long-term financing -- and many banks will be happy to consider a business plan and work with you to create a mutually-agreeable loan agreement.

Where Can I Get A Business Loan?