What is a bridge loan?

A bridge loan (or bridge note) is a short-term loan that is used for homeowners or businesses to meet financing needs until permanent financing can be obtained or until a previous financial obligation has been removed (i.e. sold). It provides cash flow now. And sometimes now is necessary.

While bridge loans can be made for homeowners (in between the sale of a house and purchase of another), Evergreen’s focus is to provide funds for those who have an opportunity to buy a property, renovate the property, and sell that property for profit. We, at Evergreen, provide a large percentage of the necessary capital for these investors to execute their plan, while ensuring that the investors themselves have a financial stake in their investment with their own capital.  

A clarification of terms: This topic will use the following terms: Borrower/Real Estate entrepreneur; Lender; and Partner/Participant.

• Borrower/Real Estate entrepreneur: the party in need of financing to launch their acquisition of a property.
• Lender: the lender is Evergreen. We are not the ones acquiring the property in the lending of bridge notes; rather, we are funding others (Borrowers/Real Estate entrepreneurs) to allow for their acquisition of property.
• Partner/Participant: This could be you, partnering with Evergreen (the lender) to fund Real Estate entrepreneurs. The Lender and its Partners/Participants benefit from the success of the Real Estate entrepreneurs' investments.

Why would a Real Estate Entrepreneur (Borrower) use a bridge note?

• Bridge notes feature a short window to close--much shorter than that of a traditional bank. Closing is often done within 25 days of the opportunity originating.
• Relatedly, bridge notes have fast turnaround times on underwriting and approval. A yes or no decision based on underwriting commonly occurs within a 5-day period.
• Banks are not interested in loans of less than a year.  Banks typically have prepayment penalties or other transactional costs. Unlike banks, we have no prepayment penalties or exit fees with our bridge notes.
• Bridge notes tend to have more flexible terms than traditional loans.

Why is Evergreen lending capital instead of buying properties?

• Unlike a typical longer hold on properties (7+ years), these investments are shorter: a year or less. This is a metaphorical sprint, rather than a marathon.
• Bridge loans provide a strong IRR for such a secure investment; in other words, the risk-adjusted return is excellent.
• Evergreen’s experience and expertise helps us to underwrite the transaction, allowing us to confirm the Borrower's assumptions to ensure that the deal is likely to succeed.

Why funding a bridge loan is an attractive investment for you, the Partner/Participant who could team up with Evergreen:

While real estate tax advantages are not available via bridge note lending, bridge note lending provides many benefits; among these are the following:

• Pre-determined, contracted rates of return--typically 8%-11%
• A shorter investment period (6-12 months), based on pre-established agreement
• First lien position in property, which provides security should the borrower default on the loan

This sounds great. What’s the catch?

There is not “a catch,” but there are benefits in other real estate investing that are not present in bridge lending. The tax advantages inherent in private real estate investment are not present with bridge lending; bridge note interest is fully taxable. Additionally, the fixed rate of return is settled. A project that exceeds financial expectations does not yield more earnings for the investor. That said, the investor will do no worse than the fixed rate of return, providing a safe--and high--floor.

If you are interested in learning more about partnering with us with bridge note lending, please contact our office at (724) 900-0009 or e-mail Mark Brooks at mark@evergreen-pgh.com.