A bridge loan gives the borrower an instant cash flow to finance a project’s immediate needs. Bridge loans are temporary, with a term of one year or so, and are normally obtained while the borrower is waiting for long-term financing to go through. They are usually offered by private lenders. A bridge loan requires excellent credit and proof of income.
Real Estate Purchase Loan
This loan is similar to the fixed-rate and ARM commercial mortgages in that it is a very traditional type of financing. The property being financed is used as collateral, and the loan’s rate is determined by the loan-to-value ratio.
Hard Money Loan
This is a collateralized loan where the property that is in need of cash also serves as the collateral. Hard money loans are normally offered by private lenders and don’t have to meet the same standards other commercial loans do. Because of this, they carry a high risk of default and, therefore, a high interest rate. These loans are temporary and usually only offered when time is of the essence, such as during a foreclosure proceeding.
Joint Venture Loan
A joint venture loan may be appropriate when all parties will equally share in the losses and profits of a property. This loan is advantageous if neither party can obtain proper financing separately. Private investors and investment firms usually offer this loan, though many may suggest that an individual pair with one of their financial partners to obtain financing. Note that, unlike a true real estate partnership, the relationship between the parties does not extend beyond the financed property.
In a participating mortgage the lender is allowed to share in part of the proceeds generated from the property. The lender would receive its monthly mortgage payment, along with interest, as well as a share in the property’s rental income or sales proceeds. A participating mortgage is popular among office and retail properties where well-known, financially stable tenants have signed long-term leases.