The classic example of someone needing a construction bridge loan is where the project has incurred additional costs for whatever reason and does not have the ability to complete the work to allow the building to be sold or refinanced into a long term take out mortgage.
Without a quick inflow of cash into the project, delays are likely going to occur that will see the sub trades disappear to other jobs and creditors demanding payment for work already completed.
This is a more common problem with an institutional construction loan in that rarely is the hold back ever paid out at the end of a project. With private mortgages, even if the project has over run to some degree or budgeted too tightly, the hold back portion will be issued 45 days after completion which will provide cash to pay off outstanding debts.
But even with private construction loans, if the project has not even gotten to a completed state, the additional funds that may become available at the end of the project will not be forthcoming unless some incremental capital is injected into the project.
The solution in many cases is to simply secure a construction bridge loan against the property as an additional mortgage. Typically, the smaller the amount of funds requested, the easier it will be to get a bridge loan in place.
Bridge loans are provided by private lenders who can quickly assess the current level of completion of the project and the amount of construction building risk that remains. If there is sufficient equity remaining in the overall project, a higher loan to value than the construction loan can be secured due to the fact that the majority of the work has been signed off already.
Because time is of the essence, these types of mortgages can be put into place in just a few business days in many cases, especially with projects that have all the documentation up to date including post building appraisal and interim draw assessment reports.
Private lenders are going to charge a lender fee for extending the construction bridge loan, but because of the short period of time it will be outstanding, the majority of the lender fee will represent the private’s return as interest will only be earned for a month or so in most cases.
If you have a project that requires a construction bridge loan, please give me a call so I can assess your situation right away and provide construction financing options that we can get into place quickly.