Commercial bridge loans are used by investors to purchase real estate or fund a renovation project while a business is actively arranging long-term financing. These are short-term loans within repayment terms between 12 and 36 months. Bridge Loans provide funding for transactions that do not qualify or are not initially suitable for long-term financing. Despite having higher interest rates, bridge loans offer more flexibility and quicker execution than other types of loans.
Also known as interim financing, gap financing, or swing loans, bridge loans can be customized to fit each unique transaction. These short-term loans, lasting 1-3 years with higher interest rates than conventional financing, can be quickly funded by banks, private lenders, and alternative lenders. Different loan types are available depending on the property and situation, including purchase, refinance, cash out, and construction.
Terms of Bridge Debt Loans
- Property type: All
- Term: 1-5 years
- Interest rate: 7.99% – 10.49%
- Loan types: purchase, refinance, cash out, and construction
- Amortization: interest only, amortized
- Origination fee: 1.00% – 2.00% (based on loan size)
- Non-recourse with standard carve-outs
- Borrower profile: Experienced, strong financials, mid to strong credit profile
Bridge loans are quicker and easier to obtain than conventional loans but come with higher interest rates and origination fees between 1-2%, depending on loan size. Borrowers are willing to pay these fees because they need quick and easy access to finance, knowing the loan is for a short period and will soon be replaced with lower-interest, long-term financing. Bridge loans usually have no pre-payment penalties and are intended to be repaid in 12-36 months.
Advantages of Bridge Loans
- Quick and high probability of execution
- Leverage for higher risk investments
With the recent Fed rate hike and rising capital expenses, the commercial real estate market is facing significant shortage in transaction volume, and speed of execution for the right deal becomes invaluable. With higher interest rates and stricter underwriting criteria, the demand for short-term and gap lending solutions is increasing. Bridge loans are quick to obtain and provide flexibility, allowing borrowers to continue business operations while waiting for more significant funding. With the current market conditions, some borrowers are opting to extend their bridge loans in hopes of cheaper options becoming available in the future.