Bridge loans are short term financing instruments designed to bridge the gap between an immediate capital need and a longer term financing solution. In commercial real estate, bridge loans are commonly used for acquisitions, repositioning, lease up periods, and situations where a property does not yet qualify for permanent conventional financing. They serve a critical function in the capital stack by providing flexible, fast capital for borrowers who need to act quickly or who are executing a business plan that requires time to stabilize.
Bridge loan terms typically range from 6 to 36 months, with interest rates higher than conventional permanent debt but lower than hard money or mezzanine financing. Loan to value ratios typically range from 65% to 80% depending on property type, condition, and borrower strength. Most bridge loans are interest only during their term, which keeps monthly payments lower and preserves cash flow during the execution period. Many bridge lenders also offer extension options that allow borrowers to extend the loan if their business plan requires additional time, typically for a fee.
Common use cases for bridge loans include acquiring a distressed or underperforming property and renovating it before refinancing, purchasing a property with existing tenants whose leases are below market and raising rents before seeking permanent financing, and securing a time sensitive acquisition where conventional loan timelines would cause the borrower to lose the deal. Bridge loans are also used for construction take out, partnership buyouts, and situations where a borrower needs to close quickly and refinance into permanent debt after the urgency has passed.
The key to successful bridge financing is a clear exit strategy. Lenders want to understand how and when the loan will be repaid, whether through refinancing into permanent debt, property sale, or business plan completion. Strong exit strategies include stabilized property refinancing at a specific NOI or occupancy target, a contracted property sale with identified buyers, or lease up to a threshold that triggers qualification for agency or conventional permanent financing. Borrowers without a credible exit strategy will struggle to find bridge financing at reasonable terms.