Bridge funding offers a fast and easy way to bridge the gap between an immediate financial need and a future source of income. Bridge loans are used by real estate investors, businesses, and even regular homeowners looking to purchase additional properties. But here is the thing: lender type matters.
By ‘lender type’, I mean both traditional and private lenders. Traditional lenders are banks, credit unions, and third-party mortgage lenders. Private lenders are firms like Salt Lake City’s Actium Partners. They are organized under the law as private lending entities rather than traditional financial institutions.
A Big Difference for Commercial Borrowers
The differences between traditional and private lenders are not an issue for home buyers looking to purchase primary residences. Why? Because private lenders don’t get into residential mortgages. Any bridge loan intended to cover the purchase of a new primary residence would have to come from a financial institution or third-party mortgage lender.
For commercial borrowers, however, it is completely different. A commercial borrower could go to his local bank. But he could also approach Actium Partners for a bridge loan. Actium can offer things financial institutions cannot. Likewise for other private lenders. What they bring to the table explains why so many commercial borrowers choose private lending as their first option.
What Makes Private Lending Different
Private bridge loans are different because private lending is different. Because private lenders are not organized as lending institutions, they are governed by an entirely different set of rules. They don’t follow traditional banking regulations because they are not traditional banks.
The regulations they do follow offer a lot of room for flexibility. They allow lenders to be more creative in the loans they offer. Furthermore, regulations do not require private lenders to look around every corner and turn over every stone in hopes of discovering the minutiae of a borrower’s financial life.
Private lenders can make lending decisions based on asset value alone. Most of them do. So if a borrower comes looking for a bridge loan in order to close on a new property, while simultaneously selling another property already in his portfolio, a bridge loan can make it all happen. The private lender can work with both properties to find a way to get a deal done.
It’s Also a Lot Faster
Differences in rules and regulations dictate that private lending does not involve as many hoops to jump through. The approval and funding processes are more streamlined from both lender and borrower alike. One of the most attractive results is speed. In simple English, private lending is a lot faster than its traditional counterpart.
Actium Partners was once faced with a situation involving a borrower whose bank backed out of financing the deal he was working on with less than one business day to go before closing. The bank backed out on a Friday morning. The borrower contacted Actium and set the wheels in motion.
To make a long story short, the borrower’s loan was approved that afternoon and funded first thing Monday morning. He was able to get to closing on time. Shortly thereafter, he began working on traditional financing to pay off his loan from Actium.
Private Lenders Can Do Amazing Things
Loan approval and funding in less than one business day is unheard of and traditional lending. It’s a lot more common in private lending because the private business model allows lenders to do some amazing things.
If you are considering a bridge loan to meet an existing financial need, understand that lender type matters. You should definitely look at private lending if it is an option.