A mini-perm loan is a type of real estate loan that is often used for interim financing for such properties as single-family, multi-family, industrial, retail buildings, and raw land. Acting as a bridge loan prior to more permanent financing, developers sometimes rely on these types of loans because the property does not yet have a stabilization rate that would generate enough gross rental income to satisfy the requirements of a permanent loan. Ideally, this loan is utilized for investment projects based on the expectation that they will show future profitability before loan maturity occurs.
Mini-perm financing gives the investor the flexibility he or she needs at the moment the renovation or construction is complete to pay off the existing lender, while beginning to establish a payment history (“seasoning”) which could take several months or years. Once the rental income becomes stabilized, conventional lenders will want to refinance the loan with a product that has a lower interest rate and longer term.