What is a bridge loan?

A bridge loan is a type of financing granted to real estate developers to carry out and/or accelerate the project they are building. Generally, it has the following characteristics:

• The construction is financed according to the project's work plan, so loan disbursements are made according to the construction progress.
• Monthly payments are interest-only: the principal repayment can be made in two ways:
  1. Through the sale of the developed apartments, houses, shops, or offices.
  2. By refinancing with a loan of fixed monthly principal and interest payments over a long period (5-10 years), using the rental income from the apartments, houses, shops, or offices built in the financed project.

A healthy bridge loan has the following advantages for the developer:

1. Reduces the developer's own capital required for the project.
2. Speeds up the real estate development, allowing profits (through the sale or rental of the constructed property) to be realized more quickly. This is a very important element that developers generally do not consider. Specifically, the financier (whether a bank or a SOFOM) should be an ally of the developer, enabling the project to be completed as quickly as possible without unnecessary delays.
3. Improves profitability for the investor-developer. This last point might sound counterintuitive; however, an example can illustrate it quite easily. Suppose:

• Total sales revenue of the real estate project: $100
• Construction costs (hard and soft costs): $75
• Required resources: $75
  • In the first case, the entire amount is funded with investors' capital.
  • In the second case, $45 is funded with investors' capital and a healthy debt of $30.
    • Debt cost: 20% annually
• Tax rate: 30% When viewing profitability as return on equity (ROE), calculated as follows:

The results of these scenarios are as follows:

The table above shows that by acquiring a healthy debt that reduces the capital requirement from investors by 40% (from $75 to $45), the net profit decreases by only 24%, thereby increasing profitability by 6 percentage points (ROE from 23% to 30%). A healthy bridge loan can improve the profitability of your real estate project!

What is a structured bridge loan?

At Soda Capital, we offer a structured bridge loan. Unlike the traditional bridge loans offered by conventional banks, we provide a bridge loan that is tailored to the needs of the project and the developer: we offer a custom loan.

Our main advantage is flexibility, so we seek to provide the best financial solution for the presented project. To do this, we always require general information about the development to give you the best option.

At Soda Capital, we provide structured bridge loans for real estate developments, always ensuring the profitability of your project!