Bridge

Commercial Bridge Loans

Commercial bridge loans are short-term financing solutions widely used in the real estate industry. House flippers, developers, and investors rely on these loans to “bridge” the gap when purchasing or renovating properties. Businesses outside of real estate may also use bridge loans when acquiring new properties.

Also known as “hard money loans,” these loans are secured by real estate and, because of their short-term nature, are sometimes called “swing financing” or “gap financing.”

Commercial Bridge Loan Highlights

Eligible Properties:

Multifamily
Office
Retail
Hospitality
Student
Senior Housing in strong markets

Loan Amount Range:

Minimum $1,000,000

Interest Rate:

7% or higher over index

Loan Term:

12–36 months; extensions possible

Amortization:

Generally interest-only, with some exceptions

Maximum LTV:

75% of cost (LTC), capped at 70% of completed or stabilized value

Recourse:

Non-recourse except standard “bad act” carve-outs

Prepayment:

Generally allowed

Loan Exit Options:

Fannie Mae, Freddie Mac, FHA, or CMBS loans

Advantages of Commercial Bridge Loans

Faster Closings: Underwriting is typically quicker, allowing borrowers to close deals faster and make offers more competitive.

Flexible Credit Requirements: Loans are based primarily on the property’s value, so borrowers with poor or limited credit can still qualify.

Interest-Only Payments: Borrowers can make interest-only payments while renovating or holding a property, deferring principal until sale or refinancing.

Disadvantages of Commercial Bridge Loans

Short-Term Only: Bridge loans are not available for periods longer than 3 years; longer-term financing requires a traditional loan.

Higher Interest Rates: Rates are higher than long-term loans, which increases cost over time, though short durations often limit total interest paid.

Higher Fees: Origination and other fees may be higher than those for conventional loans.

Commercial bridge loans are ideal for borrowers needing quick, short-term financing based on property value rather than credit history, with the flexibility to refinance into long-term solutions like Fannie Mae, Freddie Mac, FHA, or CMBS loans.

Commercial Bridge Loans FAQ’s

What Are Commercial Bridge Loans?

Commercial real estate bridge loans provide short-term financing that can bridge gaps between other payment or financing solutions. The loans are characterized by their short time frames and the role property plays in underwriting the loans. Most loans last for between 6 months and 3 years, and their underwriting is based primarily (if not solely) on the value of a financed property.

What Situations is Commercial Bridge Loan Financing Well-Suited For?

Commercial real estate bridge loans are available for virtually any type of property, and their features make these loans well-suited for several different situations:

Flipping Properties: Property flippers frequently finance properties with unamortized commercial bridge loans, which are paid back in one lump sum. A loan provides capital for purchasing and remodeling a property, and the loan can be paid off when the property is sold.
Investing in Properties: Property investors may initially finance the purchase of a high-demand property and later transfer the financing to a traditional mortgage. Underwriting for these loans usually takes less time than getting a traditional mortgage does, allowing investors to close on a property more quickly.
Moving a Business: Businesses that are relocating may use a commercial bridge loan so that they can purchase a new property before selling their current one. This eliminates the risk of having a purchase fall through after a sale has been executed, which can leave a business without facilities.
Financing With Poor Credit: Businesses that have poor credit may be able to qualify for a commercial bridge loan even if they can’t get a traditional long-term commercial real estate loan.

What Terms Do Commercial Real Estate Bridge Loans Offer?

Commercial real estate bridge loans aren’t regulated by a state or federal agency in the same way that standard mortgages are, and they offer flexible terms as a result. Most of these loans are written for 6 months to 3 years, and they may be amortized (paid in monthly installments) or amortized (paid in a single lump sum). Interest-only monthly payments are widely available, and interest rates can be variable or fixed.

Loan-to-value (LTV) ratios range between 65 and 80 percent, with the higher maximums usually reserved for properties that are being improved. The borrowed amount can be tens of millions of dollars, or it can be less than 100,000. The duration and amount borrowed may also affect the maximum LTV allowed.

What Features Do Commercial Real Estate Bridge Loans Come With?

As noted, the two primary features of commercial real estate bridge loans are their:

Short Duration: The short duration of these loans makes them ideal for covering gaps between other purchasing or financing solutions. They can be used to finance a property that’s only held for a few years or few months, or they can serve as interim financing until a long-term mortgage is secured.
Property Basis: The value of the financed property serves as the primary basis for underwriting. This both simplifies the underwriting process and gives businesses that otherwise might not be able to secure financing access to a loan option.

Along with these, commercial bridge loans are often non-recourse loans and can be set up so that monthly payments are for only the interest incurred. Non-recourse loans prevent borrowers from being held personally liable in the event that the loan isn’t repaid. Interest-only loans are commonly used for short-term purchases of property.