Hard money is a form of private lending with its own unique vocabulary. For instance, some hard money lenders offer what they refer to as swing loans. Others offer bridge loans. The two types of loans seem to be similar. Are they? Absolutely. In fact, they are pretty much the same thing.
Whether you call them swing or bridge loans, you are talking about a loan with a comparatively high interest rate and an extremely short term. It is rare to find swing loans with terms of longer than 24 months. On average, lenders prefer terms of 6 to 12 months.
Swing Loans in a Residential Scenario
The term ‘swing loan’ is more likely to be used in relation to acquiring residential property. A good example would be a buyer ready to make an offer on a new home even while his current home is still listed for sale. A swing loan would fund the purchase so that the buyer doesn’t lose the deal. Later, when the current house sells, proceeds from that sale pay off the swing loan.
Residential home buyers really need to be in a good financial position to obtain swing loans. Lenders do not give them out like candy. Not only that, but buyers also ultimately need to get conventional mortgages anyway because the swing loan’s terms are so short. So if there is any concern that a borrower will not be able to get a conventional mortgage, obtaining a swing long will be equally difficult.
Bridge Loans in a Commercial Scenario
The term ‘bridge loan’ can be applied to residential property situations, but it is most often used in relation to commercial transactions. Another difference in a commercial scenario is that the borrower might not be trying to buy one property while selling another.
Technically, a bridge loan is considered short-term financing that meets immediate financial needs until the borrower can either arrange conventional financing or find another way to settle their financial obligation. A loan made by Salt Lake City hard money lender Actium Partners a couple of years ago is the perfect example.
Actium makes a lot of loans to real estate investors in Utah. In one particular case, they financed the purchase of a multi-family apartment building after the buyer’s bank backed out of the deal. Actium made a short term bridge loan to get the deal done. Afterward, the buyer arranged conventional funding with a new bank.
Almost Always for Real Estate
Regardless of whether you are talking swing loans or bridge loans, both types are almost always utilized for real estate transactions. Banks, credit unions, and private mortgage lenders tend to be extremely cautious about funding investment properties. As such, it is difficult to get conventional loans as an investor. Hard money fills that financing void.
The primary disadvantage to borrowers is found in higher interest rates and shorter terms. Rates can be several points higher than rates on conventional loans. As for terms, that has already been discussed. To say that hard money and bridge loans are short-term loans is to state the obvious.
As for the advantages of private bridge loans, they are many and varied. At the top of the list is speed. Hard money firms can approve and fund bridge loans in days rather than weeks or months. Documentation requirements tend to be minimal as well.
Some people call them swing loans while others prefer to speak of bridge loans. Both types of loans are essentially the same thing: short-term loans designed to meet immediate needs while a borrower arranges another means of meeting their financial obligation.
