Real estate business finance
In most cases real estate loans are taken by property owners because of the value of the property involved and the amount of money that a business needs to get through cash flow shortfalls. Simply speaking, these business loans are short-term and designed to bridge the gap between a situation where permanent financing is in the plan but cannot be attained yet for any number of reasons. The money lent serves as an immediate and temporary influx of cash while the business is in transition and planning to obtain a more suitable, less expensive and long-term loan in order to secure the real estate it is interested in purchasing.
There are a number of reasons for a real estate business to need financing, such as:
A business is in the process of purchasing a new building for office space and all cash reserves are tied up in the planning process of the transition. While the business is also in the process of selling its existing property, it is still faced with the challenge of day-to-day financial requirements where cash is critical in order for the business to continue a smooth operation and transition into the new space. Also it will need down payment money for the new property and it can’t count on selling the existing property first. Using the existing equity in the property already owned, the business can bridge a loan to cover the short-term needs and pay that loan back once the existing property sells and a permanent loan to purchase the new property is secured.
A real estate company involved in the transition to an IPO but still operating as an entity purchasing entities may use a bridging loan to offset cash issues that typically occur right before the IPO is offered.
A business that specializes in investment properties can often use their existing properties as collateral for a loan to get through the short-term period when they are not yet qualified for a traditional loan. They may want to get ahead of the game and benefit from the certain discounts offered on the new property if they complete the transaction within a specific timeframe. The bridging loan is a short-term, higher cost loan, but will be satisfied once the permanent financing is attained.
Small business owners that have assets may take a loan to bridge the gap between two long-term loans in an effort to secure additional cash to cover any issues that may arise during that period. Because these loans are short-term they fit the immediate need for a business making strategic moves and in need of working capital.
Business owners use these short-term business loans as strong advantage for scenarios where they are cash poor, but own assets. Because they qualify much easier for these kinds of loans compared to traditional long-term loans it is these loan terms that are specifically catered to the borrowers’ needs even through are a much more expensive method of borrowing money. But if it can help give a company that extra boost it needs during transitional periods or in times of cash flow shortfalls then it providing the functionality it was intended for.