Bridge Loans

What is a commercial mortgage bridge loan?

A bridge loan (or swing loan, gap loan, interim financing) is a short term, hard money loan generally less than a year in length against their current property to finance another commercial property.  It is meant to bridge the gap for a customer until they can acquire long term financing on the property.

Companies use bridge loans to cover capital needs that may happen when a company may need to pay off one loan before it has had time to obtain long term financing for the loan, such as the exit of an investor who sells their shares in a company back to the remaining partners.

Why is it called a bridge loan?

Bridge loans are designed to help bridge two transactions that are contingent to complete upon each other.  For example, it can help a person purchase a property before selling their existing property.  The Consumer Financial Protection Bureau defines a bridge loan as a lending option that is meant to provide short-term capital until long-term capital is secured.

How much do bridge loans cost?

Interest rates and fees for bridge loans varies upon the situation and lender, but generally is billed monthly.  

Example: A bill rate of 1.5% per month translates to 18% Annual Percentage Rate.

What are the ideal scenarios to ask for a bridge loan?

Time is of the essence in real estate and opportunities are gone at a breakneck speed.  Hard money lenders allow for speed in a marketplace that demands quick action.  

Example scenarios could be:

  • A property developer needs more capital to build while waiting for other financing to close.
  • A property buyer needs funds to purchase another property.
  • A business wants working capital to expand in order to meet a new contract's demands.
  • An apartment complex owner wants to fund their business while seeking renters.

What are the risks or limitations of a bridge loan?

Time to pay off is the biggest risk a bridge loan customer takes when using this type of loan, so the loan holder needs to know the true risk of their scenario, if at all possible.  A borrower can request an extension from a lender, which a lender is not required to honor.  If an extension is granted, it is typically only a short term, one time offer of a few months.

How do I apply for a bridge loan?

Schedule a consultation so we can find out more about your situation to see if a bridge loan is the appropriate option for you.