A bridge loan in commercial real estate is short-term financing — typically 12 to 36 months — used to 'bridge the gap' between a current financing need and a long-term permanent solution. Bridge loans are used to acquire properties quickly, fund value-add renovations, stabilize occupancy, or refinance maturing debt while a property qualifies for agency or permanent financing.
Bridge loans solve a wide range of timing and transition problems in commercial real estate. Common uses include: acquiring a vacant or partially occupied property that doesn't yet qualify for permanent financing; funding a major renovation or repositioning project; refinancing a balloon payment on a maturing note while a longer-term sale or refinance is arranged; buying a property at auction or through distressed channels where fast closing is required; and creating time for lease-up or occupancy stabilization before applying for a Fannie, Freddie, or bank permanent loan.
Commercial bridge loans are typically interest-only, which means borrowers pay only the interest component each month — no principal amortization. This keeps monthly payments low during the transition period. Loan terms range from 12 to 36 months, often with extension options. LTV ratios typically range from 65% to 75% on the as-is value, with some lenders funding up to 80% on strong sponsorship deals. Interest rates are higher than permanent financing, reflecting the short duration and transitional nature of the asset.
Every bridge loan requires a clear exit strategy — the mechanism by which the borrower will repay the loan. Common exits include: property sale after renovation or lease-up; refinance into a conventional bank loan or CMBS; takeout by an agency loan (Fannie Mae, Freddie Mac) once the asset is stabilized; or refinance into an SBA 504 loan for owner-occupied commercial properties. Lenders underwrite the exit strategy as rigorously as the property itself.
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