Commercial Bridge Loan

Last Updated: 03/24/2024

Loan Highlights

Suitable for borrowers seeking quick access to capital for time-sensitive opportunities, property renovations, or value-add projects.
Also suitable for borrowers looking to bridge the gap between purchasing properties.
Also suitable for borrowers looking to capitalize on distressed properties, turnaround opportunities, or acquisitions requiring quick funding.
Offer flexibility and speed, making them ideal for investors or developers needing immediate financing for commercial real estate transactions.
Ranges from several hundred thousand to several million dollars, depending on property value, location, and borrower qualifications.

Federal Fund Rate + 4.50% Margin

*The mortgage interest rate calculation above is estimated.

Short-term loan typically with terms ranging from a few months to three years.
Interest rates may be higher than traditional bank loans, reflecting the short-term nature and increased risk for lenders.
Loan-to-value (LTV) ratio typically ranges from 60% to 70%, depending on the property’s condition, location, and potential for value appreciation.
Interest-only payments during the loan term, with the principal typically due in a balloon at the end of the term.
Can be used for various commercial property types, including office buildings, retail centers, industrial properties, and multifamily housing.

Stabilized properties: Properties with a clear path to stabilization or value enhancement, such as renovations or repositioning strategies.
Borrower experience: Lenders may require borrowers to have experience in commercial real estate investing or property management.
Clear exit strategy: Borrowers must demonstrate how they will repay the loan, typically through property sale, refinance, or other means.
Minimum DSCR Ratio: 1.25% (Debt-Service-Coverage Ratio)
Property appraisal and inspection may be required to assess value and condition.
Documentation:
- Typical Documents: Typically full documentation (full docs) including property financials (last 2 years P&L), renovation plans, borrower financial statements (last 2 years tax returns and P&Ls), and legal documents.
- Borrowers may also need to provide evidence of available equity, a clear exit strategy, and a viable plan for property stabilization or value enhancement.

Mezzanine Financing: Combined with bridge loans to provide additional capital for commercial real estate projects, mezzanine financing offers higher leverage and flexibility for borrowers.
Construction Loans: Offered for ground-up construction or major renovations, construction loans provide financing for commercial properties during the development phase, with bridge loans used to bridge the gap between construction and permanent financing.

Commercial Bridge Loans are funded by private lenders, hedge funds, or specialized bridge loan lenders, with lending decisions based on property value, borrower qualifications, and potential for project success.

Common misunderstandings with Conventional Commercial Loans include:
- Strict eligibility criteria: While conventional loans offer competitive terms and flexibility, they may have stricter eligibility criteria compared to government-backed or alternative financing options. Borrowers should be prepared to meet lender requirements for creditworthiness, collateral, and documentation.
- Longer processing times: Conventional loan approvals may take longer compared to alternative financing options due to the extensive underwriting and documentation requirements. Borrowers should plan accordingly and work closely with their lender to streamline the application and approval process. -Importance of property valuation: Lenders rely heavily on property valuation to determine loan eligibility and terms. Borrowers should ensure that their property is appraised accurately and that any value-enhancing improvements or market factors are taken into consideration during the appraisal process. Working with experienced appraisers and advisors can help borrowers maximize property value and improve their loan terms.