Commercial bridge loans are short-term loans used for commercial real estate projects including acquisition or renovation. Also referred to as “swing loans,” they are designed to provide financing temporarily, typically for up to 24 or 36 months, until long-term financing can be secured. 

Bridge Loan Options For Commercial Property

A bridge loan for commercial real estate allows a business to get financing quickly, often to acquire or renovate a commercial real estate property. It may also be used for specific needs such as buying out a partner or lease-up stabilization (financing for pre-leasing until the property is leased out to a certain percentage). 

The way bridge loans work, they are meant to be used for a short period of time until a traditional loan can be obtained. The new loan will then be used to refinance the bridge loan, and additional funds may also be available depending on the details of the deal. 

Because funds will be lent for a few months or years, these loans typically carry a higher cost than traditional commercial real estate loans. This is a short-term financing solution that is meant to be replaced with long-term financing as soon as it’s feasible to do so. 

Where to Find a Bridge Loan Lender

Commercial bridge loans are a specialized type of commercial real estate loan. The main types of lenders offering this type of financing include:

Banks: Some banks and even credit unions may make commercial bridge loans. However, banks often have some of the most stringent qualification requirements. 

Commercial real estate lenders: Lenders that specialize in business loans for real estate may offer this product in addition to other types of business financing. This may include online lenders.

Hard money lenders: These lenders specialize in harder to finance deals, typically at a higher cost. They are often private lenders looking to make a quick return on the funds they lend. 

Your real estate professional may be able to suggest local lenders offering these types of loans, but you may also want to shop around to make sure you’re getting the best terms. 

What To Look for in a Bridge Loan Lender

These questions can help you identify the right lender for your situation:

Does the lender serve your industry? Some lenders may specialize in retail properties, while others may have more experience in healthcare facilities. Make sure the lender works with businesses in your industry, or the industry in which you’re purchasing the property. (Industry is often identified using NAICS codes.)

What are the down payment requirements? If a lender will only lend up to a maximum LTV (loan-to-value) of 65% but you only have a 30% down payment, there will be a gap you’ll have to fill. 

What is the typical turnaround time? An important consideration will often be whether you can get funding quickly. These loans are often used for time-sensitive projects and therefore you want a lender that’s responsible and reliable and can get your business the financing it needs to meet your deadline. 

What repayment options are available? Often a business won’t have sufficient cash flow to make fully amortized monthly payments immediately. Interest-only payments can help preserve funds in the meantime. 

What is the cost? The interest rate will likely vary depending on the type of property being purchased, the down payment and borrower qualifications. However, the lender should be able to provide a range of bridge loan rates before you complete a full application.  You will also want to understand typical fees (origination fees, closing costs) that will be charged as well as any prepayment penalties. 

The Best Bridge Loan Lenders

The best lender is the one that will help your business get the financing you need at an affordable cost. Here are three to consider:

Awana Capital promises quick approval and closing times at competitive rates for qualified borrowers. 

Arbor advertises bridge financing for properties located in strong markets with excellent sponsorship. Structured Financing® Bridge goes up to $15 million.

Bloomfield Capital focuses on commercial bridge loan amounts between $2 million and $20 million.  

FAQs

What is the average interest rate for a bridge loan?

Expect higher interest rates than with a traditional commercial loan, such as a bank loan. Variable rates are common. Interest rates are trending upward in 2022, and may change quickly. However, you can generally expect rates to be anywhere from 7 – 15% or higher. 

What credit score is needed for a bridge loan?

Credit score requirements for residential bridge loans will be much more common than in commercial real estate. With these types of loans, the strength of the deal will be paramount. However the lender may require the borrower to have a good credit score as that may affect the ability to secure permanent financing. A credit score in the high 600s or low 700s may be required. 

Factors that will be important in this kind of deal include:

• Debt service coverage ratio (DSCR) 
• Loan-to-value (LTV)
• Loan-to-cost ratio (LTC)

You may see the term “sponsorship,” which refers to borrower qualifications such as experience in commercial real estate, net worth and liquidity. 

Is It Hard To Get A Bridge Loan?

Getting a bridge loan for commercial real estate isn’t necessarily harder than other types of real estate loans, but it will not be as easy as getting unsecured small business loans. Entrepreneurs without commercial real estate experience will want to work with a lender who can guide them through the myriad requirements. 

Borrowers who are new to commercial real estate in general may also want to get free help from SBA resource partners such as Small Business Development Center or SCORE, both of which can provide free mentoring. SCORE volunteers who previously worked in commercial lending or commercial real estate can be particularly helpful. Find your local SBA resource partner here.

What are Residential Bridge Loans?

Residential bridge loans are used by homeowners for short-term financing. There are two common scenarios where they are used: 

1. New construction. Homebuyers building a new home may get a bridge loan to cover costs until the new house is built and a traditional mortgage can be secured. 
2. Selling and buying a home. Homeowners who are moving and plan to sell their current home may need financing for a new home purchase before their old home is sold. A bridge loan may help them do that. This is especially important in the recent seller’s market where buyers may not accept an offer contingent on the sale of another home.

Borrowers will need to qualify for the bridge loan and, if applicable, the new mortgage loan. Credit scores, debt-to-income ratio, and income sufficient to make mortgage payments and other debts will be crucial qualifying factors. 

A home equity loan, home equity line of credit (HELOC) are both types of second mortgages that can serve as a bridge loan if you have a property with sufficient equity. 

Alternatives to Commercial Bridge Loans

There are a number of short-term small business loans that may be easier to qualify for, or more suitable for specific purposes. 

The SBA 504 Loan is an option worth exploring, either to acquire a new property or to renovate an existing one. It won’t be as fast as some bridge loan options, but rates and terms can be excellent. Due to SBA loan requirements it must be at least 51% owner-occupied.

If you are looking for a short-term loan not secured by real estate you may want to look into a business term loan. Banks as well as online lenders offer short-term loans, usually with repayment terms of 12-36 months. Typical qualifications for these loans include good credit, at least two years in business and revenues backed up by business bank statements. 

A business line of credit can also be a good way to access financing quickly. With a line of credit you’ll only pay interest on the amount you borrow. It may be useful in addition to a bridge loan, and can be used for a variety of working capital needs.