Loan Types
Bridge Loan
A bridge loan is a short-term financing tool, typically 6 to 36 months, used to acquire, reposition, or stabilize a commercial property before securing permanent financing or selling the asset. Bridge loans close faster and underwrite more flexibly than conventional debt but carry higher rates, often 200–500+ basis points above permanent loan pricing, plus origination fees of 1–3 points.
Example
An investor buys a half-vacant office building with a 12-month bridge loan at 9% interest-only, uses the loan proceeds plus a renovation holdback to re-lease the space, then refinances into a lower-rate permanent loan once occupancy and NOI stabilize.
Bridge loans exist to fund the gap between a property's current, often underperforming state and the moment it qualifies for cheaper, longer-term permanent financing. Because the underlying deal is inherently transitional — a partially vacant building, a property needing renovation, a fast-closing acquisition without time for full agency underwriting — bridge lenders underwrite more to the sponsor's business plan and the asset's future potential (via ARV) than to trailing NOI alone.
Bridge debt is priced meaningfully higher than permanent or agency financing to compensate the lender for the added execution risk and shorter hold. Most bridge loans are interest-only, floating-rate, and structured with an initial term plus one or two extension options tied to performance hurdles (e.g., hitting a minimum DSCR or occupancy level to extend).
The biggest risk in bridge lending is exit risk: if the business plan runs long, costs overrun, or the permanent lending market tightens before the borrower can refinance or sell, the borrower can face a maturity default or be forced into an expensive extension. This is a common thread in bridge-loan horror stories — borrowers who assumed a straightforward refinance that didn't materialize on schedule.
Frequently Asked Questions
How long does a bridge loan typically last?
Most commercial bridge loans have an initial term of 12 to 24 months, often with one or two 6-to-12-month extension options available if the borrower meets specific performance benchmarks like a minimum DSCR or occupancy threshold.
Who provides commercial bridge loans?
Commercial bridge loans come from national non-bank lenders, debt funds, banks with short-term programs, and private lenders. Borrowers can approach a lender directly when the deal fits its published program, or use a broker or marketplace such as YieldStack to have several fitting lenders price the same deal and compare competing term sheets.
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