Regulations Governing the Approval of a Bridge Loan

Regulations Governing the Approval of a Bridge Loan
Regulations Governing the Approval of a Bridge Loan
October 17, 2016

The approval of loan is not an action that can be taken by any financial institution in isolation because various loans are under various regulations. For example, Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, and Regulation Z all play vital roles in the approval of loans in their different spheres.

Bridge loan is exempted from some of the loan acts

There are different types of loan structures but bridge loan is of interest because it is freed from Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act but it is still bound to the Regulation Z which may as well be the key player to dictate if the loan would be approved or not. Except in the case where the loan gets an exemption under a section (§ 1026.3) of the law.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Bridge loans are short-term loans

Like the name implies, bridge loans are short term loans that can be taken while waiting for the main long-term loan. It bridges the gap that should have been lost to waiting for the long term loan and can be used to maintain the business within the period of the wait. In brief, it is an emergency loan, the duration for repayment is short and the amount that can be given is limited too.

Temporary finances are exempted from Regulation C

All forms of temporary loans (which bridge loan falls under) are exempted from Home Mortgage Disclosure Act. This is contained in the Regulation C § 1003.4(d) (3). In addition to the aforementioned regulation, Regulation X § 1024.5 exempts all bridge loans from Real Estate Settlement Procedures Act.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Regulation Z does not have a blanket cover for any loan

Unlike Regulation C § 1003.4(d) (3) and Regulation X § 1024.5, Regulation Z does not exempt any brief financing. Lenders such as Park West will normally look at the details of the transaction to know if it is under any exemption. Such analysis is vital before the loan application to avoid delay in approval or a situation where the financial institution will request for other documents like specific disclosures.

Regulation Z (§ 1026.3) exempts some transactions

It may appear as if Regulation Z (§ 1026.3) is the meanest of all but there are also some transactions such as loans over certain thresholds and business purpose credits which are exempted by Regulation Z (§ 1026.3).

Read also: What You Never Knew about the Small Business Administration Loans

Certain requirements have to be met for commercial bridging finance

Regulation Z (§ 1026.3) recognizes immunities from integrated Disclosure Rule which are valid to certain rules. As a result of this, commercial bridging finance will need to meet certain conditions like being a non-interest oriented and meets certain cost and contract provisions, being a subordinate lien and being a Regulation Z compliant.

Working with experienced bridge loan lenders will save you from frustration

It is frustrating when you apply for a loan (particularly bridge loan) which you wish to use and settle some pressing need but the loan gets declined or you are required to provide more information which may not be within your immediate reach. When you work with expert bridge loan lenders, these are some of the issues that will be looked into before your application. Loans that enjoy a number of exemptions as mentioned above will be ultimately subject to Regulation Z.

Have a financial adviser

Every business is mandated to have a financial adviser. The work of a financial adviser is to help the business decide which loan is most suitable to them and analyzing if it is even necessary to take up loan if there are better alternatives.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Approval of loans is subject to various regulations.
  • Small loans are exempted from various regulations.
  • Bridge loan is a short term loan.
  • Bridge loans are exempted from Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act.
  • The amount given out in bridge loan is limited.
  • Temporary loans are exempted from Home Mortgage Disclosure Act.
  • Short term loans are regulated by Regulation Z.
  • Good credit score will increase your chance of getting a loan.
  • To be exempted by Regulation Z, the borrower needs to meet certain criteria.
  • Working with a bridge loan expert will help you avoid a declined loan application.

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