Otherwise known as caveat loan, bridge loan is a temporary loan taken to finance a short-term business until the next financing stage is reached. Subsequently, cash from the new long-term loan is used to finance both an investment plus clear the previous short-term loan.
Unlike the long-term financing which is asset-based, bridge loan may use cross-collateralization, meaning that a borrower could secure two loan with a collateral. For instance, the same collateral security for a car loan could be used to secure a commercial loan to finance a real estate property. The process of documentation is also very easy, hence, less bureaucratic compared to long term.
It sound pretty funny to mention that a borrower who takes a short-term loan is like a boomerang; you can always expect them to keep coming back for more, especially when the borrowing terms for a short-terms financing is expired. In short and simple terms, a bridge loan is taken to meet the need of a time crunch and quickly secure a possibilities. Adding to that, hard money financing comes into play after the time crunch is lapsed.
Hard money loan is a commercially beneficial to individual and entities who seek financing for a long-term business. It operates based on assets- genuinely owned property which is tendered as collateral. Under this arrangement, a borrower gets financed by a lender based on a property with proof of genuine ownership. In terms of interest rates, same criteria as with bridge loan financing applies here. While both share many similarities, the difference is clear in terms of processing, servicing and collateralization. A hard money loan takes a little while longer to secure compared bridge loan.
While cross collateralization of using one property to secure several loans is allowed for a bridge loan, hard money it is a different ball game. Only genuine assets with strong proof of possession are allowed to be used as collateral and the assets must not be linked to any other form of financing.
As far as commercial real estate is concerned, you will not always expect things to go your own way- a big mistake made by most freshmen when venturing into an investment. Getting financing before negotiating for a deal is a bad idea as you may not have taken enough equity from the lender to secure the deal. For that, you need to find an offer first.
Another food for thought is that you need to find the right funding source. There are many funding companies out there, some have rigid lending terms while other have flexible terms. Look for a commercial lender that offer mortgage loan with less strict terms. You have probably head of a loan shark or shylock who is engaged in illegal financing for the sole intent and purpose to hoodwink borrowers. Stay away from such lenders.