Do Bridge Loans and Bad Credit Mix?

As with any financial solution, finding success with a bridge loan requires due diligence before borrowing and planning to understand your needs.

For borrowers with bad credit, bridge loans are an attractive alternative to traditional financing when quick funds are needed. The value of the loan is based on the value of the property you use for collateral. This means a few mistakes on your credit history aren’t likely to impact approval or the cost of the loan.

If you’ve attempted to secure funding from a senior lender, such as your local bank or one of the Small Business Administration’s loan programs, and failed, a bridge loan might be the best option to reach your investment goals.

Planning Ahead to Account  for Creditworthiness

Of course, even a private lender is looking for a return on their investment.

Through proper planning, you can help to minimize the impact of your credit on lender approval.

Proving any of the following is a great way to demonstrate to lenders that you’re a sound investment despite any credit discrepancies.

A Strong Debt Service Coverage Ratio (DSCR)

Your DSCR is simply your net operating income divided by your total debts. This quick calculation is often used by lenders to assess your ability to repay debts in a prompt manner. While requirements vary between lenders, most lenders like to see a number between 1.1 and 1.25.

A Cohesive Action Plan and Executive Summary

Bad credit doesn’t always stem from bad decisions. Having a thorough action plan and executive summary prepared for lenders shows you understand the project you’re about to undertake. This can help to tip the scale in your favor and improve the costs of your bridge loan.

Experience and Positive Outcomes with Similar Projects

Besides your action plan and executive summary, experience with similar projects can help outweigh the impact of credit mishaps. Prior experience and success shows lenders you’re a promising investment and likely to bring returns for their risk.

A Breakdown of Your Financial Needs

On top of having a plan, you should be able to outline exactly how a lender might help you reach your goals. This shows you’ve considered your situation and understand what you need to succeed.

Providing a breakdown of how you plan to spend the loaned funds and financial documentation on all involved parties and properties helps lenders to assess your situation and may work in your favor for approval.

Getting a “Yes” when Banks say “No”

Even with an ideal plan and portfolio, it’s important to assess your options carefully. It might even take a few tries to find a lender who is ready to work with you.

As bridge loans are less regulated than traditional mortgages or other forms of debt financing, rates and costs vary. To complicate matters further, some lenders specialize in certain types of property or place upper and lower limits on loan amounts.

If you’re looking for a bridge loan with bad credit, our Guide to Bridge Loans offers further insight into how these popular financial solutions work.

Better still, call and schedule a consultation with one of our analysts. After assessing your situation, we’ll
make suggestions and help you arrange a solution to meet your needs from our extensive network of private lenders.

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This website and blog is a publication of UT Financial Services, LLC. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.

Purpose of this blog is to give general education and information about investing and business financing. Information on this website and blog do not involve the rendering of personalized investment advice. No content should not be construed as legal or financial advice.

Consult a professional advisor before implementing any of the options presented.