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Commercial Bridge Loans

Commercial bridge loans are a short-term financing solution that’s widely used within the real estate industry. House flippers, real estate developers and real estate investors all use these loans to “bridge” a gap when purchasing or renovating a wide array of properties. Even businesses in other industries may take out a commercial real estate bridge loan if they purchase a new property.

These loans are a type of “hard money loan,” for they’re secured by tangible property (i.e. real estate). Because of the short time frames of these loans, they’re sometimes also referred to as “swing financing” or “gap financing” for real estate.

Commercial Bridge Loan Highlights

Eligible Properties:
Multifamily, Office, Retail, Hospitality, Student and Senior Housing in strong markets
Loan amount range:
Minimum $1,000,000
Interest Rate:
7% or Higher over index
Loan Term:
12 months 36 months. Extensions are possible
Amortization:
Generally Interest with some exceptions
Maximum LTV:
75% of cost (LTC) capped at 70% of the completed or stabilized value.
Recourse
Non-recourse except industry-standard “bad act” carve-outs.
Prepayment:
Generally allowed
Loan Exit:
Fannie Mae, Freddie Mac, FHA or CMBS loan

Advantages of Commercial Bridge Loans

In addition to their short time frames, commercial bridge loans offer several advantages compared to other loan options:

  • Commercial bridge loans usually don’t take as long to underwrite, which makes it possible to close on properties faster. Being able to close faster might make an offer more attractive compared to other offers.
  • Since commercial bridge loans are underwritten primarily on the basis of a property’s value, the credit requirements for these loans are much less stringent than the requirements for traditional long-term mortgages. Businesses that have bad or poor credit may still be able to obtain this type of loan.
  • Interest-only commercial bridge loans allow flippers and developers to only make interest payments while working on a property, and defer the rest of the loan until a property is sold.

Disadvantages of Commercial Bridge Loans

While commercial bridge loan’s advantages are helpful in many situations, there are a couple of disadvantages that borrowers should be aware of:

  • Commercial bridge loans aren’t available for long terms, such as beyond 3 years. A more traditional loan is needed for longer time frames.
  • Interest rates for commercial bridge loans tend to be higher than those of long-term, traditional loans. Paying higher interest adds up over time, although the total interest over a short-term time frame may be minimal.
  • Origination fees for these loans may be higher than fees for other loans.

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Bobby W.

“I would like to thank you in helping me purchase the 20 unit apartment building. You guys were very helpful and found a good rate! I closed yesterday and I cant thank you enough”

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.

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Bobby W.

“I would like to thank you in helping me purchase the 20 unit apartment building. You guys were very helpful and found me a good rate! I closed yesterday and I can’t thank you enough.”