Today there are many loans: personal, consumer, for companies, mortgages, short, medium and long term, etc. Bridge loans are an option, too!

In the real estate market there are several ways of financing that allow projects to be sold. However, today in BluWav Capital’s blog we are going to focus on bridge loans. What are they and how to they really work?

How do bridge loans really work?

The first thing is to define what a bridge loan is.

A bridge loan is one that is requested in response to an immediate need for financing and is temporary (its term is usually not more than 5 years). It will cover you until final financing for the project is achieved.

Its third characteristic is to have the security that whoever receives it will have the economic capacity to return it. It is considered a “short” term financing method before acquiring the long-term loan. In other words, it serves to cover a capital deficit in a given period of time.

Bridge loans in the real estate sector

In the real estate market, bridge loans that most contribute to the development of the sector are those granted to small and medium projects.

Until the real estate crisis of 2008, it was the banks that financed projects and they hardly had the need to use their own funds. After the outbreak of the crisis, the bank stopped giving liquidity to the acquisition of land, among other parts of the initial phase of a new project. Because of that, this type of loan emerged as an alternative financing option. This is particularly true for the real estate sector.

In this context, if a promoter did not have a solid project, he could not find a way to make the building viable. It should be noted that, after the crisis, the value of the land fell to historical lows.

However, with the recovery, this scenario changed in big cities. Once again, with bridge loans you may get the financing your business needs!

Are there any other options?

Alternative financing thus becomes essential in the real estate sector, especially in the residential area, to facilitate the acquisition of land.

On top of that, it allows you to carry out the architectural project so that both give rise to the necessary pre-sale of homes (between 30% and 50%). It is the support and guarantee of the viability of the promotion.

As can be seen, the reason for accessing this type of financing is due to its short-term nature. Although there are other options, we consider bridge loans the best. If you want us to help with yours, get in touch!