Frequently Asked Questions

A bridge loan is a short-term loan used by a person or company for their commercial property needs. These loans are used until permanent financing is secured, or an existing obligation is removed. It allows the user to meet current obligations by providing immediate cash flow. Bridge loans are short term, up to one year, have relatively high-interest rates, and are usually backed by some form of collateral, such as real estate.

These private money loans are often called bridge financing, hard money loans, or gap loans.

The Loan Checklist is a thorough list of items that ensure the Lender and its Loan Participants that all due diligence and closing items have been completed and executed.

The Loan Agreement is the written contract between the Borrower and the Lender, identifying the specific terms of the Loan, e.g., Loan Amount, Interest Rate, Term, and applicable Payment schedules.

Note: Negotiable instrument that evidences the Loan.

The Promissory Note is the Borrower's written promise to repay the Loan and recites specific terms of the Loan Agreement. The Promissory Note differs from the Loan Agreement in that the Promissory Note contains an actual promise to pay, rather than acknowledging that a debt exists.

A Guaranty is personal wealth of each Guarantor that separately backs repayment of the loan (in addition to the real estate, as a backup).

The Unconditional Guaranty of Payment & Performance is a personal guaranty by a third party ("Guarantor") that the Borrower's obligations will be fulfilled. In the event of default by the Borrower, the third-party Guarantor will be held personally liable, and the Lender can lay claim to the Guarantor's personal assets.

The Mortgage and Security Agreement is a contract by which operating covenants are created by the Lender to secure the performance of the Loan. It gives the Lender or beneficiary certain rights by allowing or disallowing specific operations of the building by the Borrower. Common Lender covenants will prevent substantial building renovations or Lease modifications without the Lender's consent to ensure that the Loan risk is mitigated.

The Pledge Agreement is a contract by which Lender security is increased by allowing the Borrower to pledge additional collateral as security for a loan, e.g., certain stocks, bonds, or other ownership interests.

The Collateral Assignment of Leases is an agreement by which upon the event of default by the Borrower, the Lender shall have all rights, title, and interest in the leases and be able to demand, collect, and receive from tenants any rents and enforce the provisions of the Leases.

The Borrower's Counsel Opinion is a legal opinion from Borrower's and Guarantors' Counsel that the loan agreement and loan documents are legal, valid and binding agreements enforceable in accordance with their terms.

A Deed of Trust (or Mortgage) is Real Estate that secures repayment of the loan.

An Owner's Affidavit is a sworn legally binding document that the real estate does not have other liens, and the Borrower entity is authentic.

An Assignment of Rents is a separate document from the mortgage/deed of trust that allows the Lender to collect the rent and apply it to pay down the loan if there is an event of default without having to go through foreclosure of the mortgage/deed of trust.

An Estoppel is a confirmation from Tenants that their leases are valid. Neither they nor the Landlord is in default, they have not prepaid rent, and if there is a foreclosure of the mortgage/deed of trust, they will recognize the transferee as the Landlord.

The Title Commitment is the insurance that confirms that the Borrower has legal title to the real estate and that the mortgage/deed of trust creates a valid first priority lien on the real estate.

The alternative source for the Borrower is usually the decision to bring on a new equity partner and thus grant away a portion of ownership in their real estate or company, indefinitely. As a result, before agreeing to work with the Lender, the developer or owners of the company typically will ask themselves:

"Is it worth it for us to rent the capital to achieve our business goals OR bring on a new equity partner and permanently give a part of our real estate or company away?"

"Is the cost of renting our capital justified against the expected EBITDA growth?"

The answer: Most good business minds find that the ROI is very attractive, that is, the cost of renting is far outweighed by the aggregate growth in profits and the resulting enhanced enterprise value.

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