What is a bridge loan in commercial real estate?
A bridge loan is a short-term, interest-only loan, usually 12 to 36 months, that finances a property until it qualifies for permanent financing or is sold. Typical terms are 8 to 12 percent interest, one to two points, and 65 to 80 percent of value, and the lender's central question is how the loan gets paid off.
What it is for
Permanent lenders want a finished, rented, stabilized property and a borrower with documentation in order. A bridge loan covers the gap when one of those is missing:
- The property needs renovation or lease-up before it can qualify.
- You have to close before your current property sells.
- The seller needs a 21-day close and the permanent lender needs 60.
- The permanent loan will be a DSCR or bank loan once rents are in place.
Typical terms
| Term | Typical range |
|---|---|
| Rate | 8 to 12 percent, interest only |
| Points | 1 to 2 |
| Term | 12 to 36 months, with extensions available for a fee |
| Leverage | 65 to 80 percent of current value, up to 85 percent of cost on value-add |
| Credit minimum | Around 650 |
| Time to close | 2 to 4 weeks |
| Interest reserve | Common, funded from loan proceeds |
Ranges vary by lender and property type.
How it differs from hard money
Bridge lenders underwrite the borrower, the property, and the exit. Hard money lenders underwrite mostly the property's equity and close faster at a higher cost, typically 10 to 14 percent with two to four points. Bridge is the cheaper option when you have decent credit, a documented exit, and a few weeks.
The exit is the loan
Every bridge loan is approved on its exit. The three accepted exits are a sale, a refinance into a permanent loan, or stabilization that makes a refinance possible. Before you close, know which permanent loan you will refinance into and confirm you qualify for it today. A bridge loan without a confirmed exit is how borrowers end up paying extension fees or facing a maturity default.
A typical sequence
Buy a vacant fourplex with a bridge loan at 75 percent of cost. Renovate and lease all four units over six months. At month seven, refinance into a DSCR loan at 75 percent of the new appraised value, which pays off the bridge loan and returns some of your cash. Total bridge cost on a $600,000 loan held seven months at 10 percent with 1.5 points: about $44,000.
How CommFi handles it
Our lending desk prices the bridge loan and the exit together and funds direct when it fits. When the deal needs a specialist, such as a lender that closes in ten days or one that goes to 85 percent of cost, the desk searches a database of 7,000+ lenders and the ones that fit compete for it. Zero upfront fees.
Related reading
Related questions
- How long is a bridge loan?
- Usually 12 to 36 months, interest only, with extensions available for a fee of a quarter to a half point.
- What interest rate do bridge loans charge?
- Typically 8 to 12 percent, depending on leverage, credit, experience, and the strength of the exit.
- Is a bridge loan the same as hard money?
- No. Bridge lenders underwrite the borrower and the exit and charge less. Hard money underwrites the property's equity, closes faster, and costs more.
- What can I use a bridge loan for?
- Buying before selling, renovation and lease-up, fast closes, and any property that will not yet qualify for a permanent loan.
- How do I pay off a bridge loan?
- By selling the property or refinancing into a permanent loan such as a DSCR or bank loan once the property is stabilized.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.