You imagine being a real estate investor with an active bridge loan you used to obtain a new property while waiting on the sale of an existing property in your portfolio. As your maturity date approaches, it is clear that you will not sell that property after all. Now what do you do?
Perhaps you do not have to imagine. Maybe you’re facing that very scenario right now. The first thing is not to panic. With a little creativity and a willingness to work outside the box, there is a good chance you can find a solution to your problem. Contact your lender and explain the situation. Then, work with your lender to find a solution.
Bridge Loan Basics
Before getting to potential fixes, let us first discuss bridge loan basics. According to Actium Lending out of Salt Lake City, Utah, bridge loans are short-term loans designed to meet immediate financial needs expecting future resources will cover the loan and interest.
A typical scenario in the commercial real estate industry is putting a property up for sale while you are also trying to add a new property to your portfolio. You are depending on the sale to repay what you borrow.
Actium says bridge loans are fairly common in commercial real estate investments. They used to be pretty common in residential real estate, though that changed with the 2012 housing crash. Bridge loans for residential properties are rare these days.
Refinance With the Same Lender
The first potential solution is to attempt to refinance with the same lender. But rather than attempting another bridge loan, refinance using a hard money loan with a longer term. While your bridge loan might have a term of just 6 months, perhaps you’d qualify for a 24-month hard money loan. That would give you an additional 18 months if supported by a better exit strategy.
It goes without saying that this particular solution can be a hard sell. But who knows? Maybe your lender understands your situation and is willing to look at a longer-term instrument. You will need to have the collateral to support it, of course.
Refinance With Another Lender
Refinancing with another lender is also a possibility. You can go with a traditional hard money loan or seek conventional financing. Both could be equally difficult to arrange due to the fact that you are already in trouble with the bridge loan. But go ahead and try. The worst that could happen is that every lender you approach turns you down.
Dip Into Your Cash Reserves
The fact that you were able to obtain a bridge loan suggests your lender looked into your financials and was satisfied. Is that because you have significant cash reserves? If so, those reserves might be your ticket. Though you probably don’t want to tie up so much cash in a single transaction, dipping into cash reserves could be your best option for getting things taken care of.
Dipping into cash reserves goes against your entire purpose in taking out a bridge loan. You want to preserve cash for other things. But faced with the possibility of the lender taking action against you, putting a dent in your cash supply probably makes good sense.
A Quick Asset Sale
One last thing to consider is a quick asset sale. Maybe you have another property you know you could sell quickly. Though you hate to part with it, it’s still better than the alternative. Otherwise, you could face the very real prospect of the lender taking your collateral to cover what you borrowed.
