Bridge Loans

What is a Bridge Loan?

A bridge loan is a short-term financing solution used to provide immediate cash flow for commercial real estate transactions until permanent financing is secured or an existing obligation is removed. These loans allow borrowers to meet current obligations by bridging the gap between two financial transactions, typically lasting from 6 months to 3 years.

How Do Bridge Loans Work?

• Take advantage of immediate property opportunities
• Fund renovation projects
• Refinance existing debt
• Acquire properties while arranging permanent financing

Lenders often finance up to 75% of the as-complete value of the project, with interest-only payments during the loan term. Repayment typically occurs when the borrower secures permanent financing, completes property improvements, or sells the asset.

Bridge Loan Requirements

• Strong credit profile
• Sufficient equity in the current property (typically 20-35%)
• Viable exit strategy (e.g. sale, refinance)
• Detailed business plan for the property
• Experienced sponsorship or management team

Pros and Cons of Bridge Loans

Pros

1. Quick access to capital for time-sensitive opportunities
2. Flexibility in repayment terms
3. Ability to make non-contingent offers on properties
4. Customized loan structures based on individual needs

Cons

1. Higher interest rates compared to traditional commercial mortgages
2. Shorter repayment terms, creating pressure to secure permanent financing
3. Additional fees, such as origination and exit fees
4. Typically require collateral, often the property being financed14

Bridge Loan Alternatives

Commercial bridge loans offer a valuable tool for real estate investors and developers to capitalize on opportunities and navigate transitional periods. While they come with higher costs, the flexibility and speed they provide can be crucial in competitive markets or time-sensitive situations