Bridge Loans vs Construction Loans: Timing, Draws, and Cost
One hands you the money at closing. The other releases it in stages as the work gets done. The right one depends on what you are building.
Existing Building or Ground-Up?
Bridge loans and construction loans both carry short-term commercial deals, but they fund completely differently. A bridge loan hands you the money at closing. A construction loan releases it in stages as the work gets done.
The right one depends on whether you are buying and holding an existing property or building and improving one.
How Bridge Loans Fund
A bridge loan funds as a lump sum at closing. Rates run 9 to 12% interest-only, terms are 12 to 24 months, and leverage lands at 65 to 80% LTV. You pay interest on the full balance from day one.
Bridge capital suits an existing structure that needs time, not construction. Acquisition and lease-up, a light renovation, or a repositioning to permanent-loan condition are the common cases. The lender wants a clear exit through refinance or sale.
How Construction Loans Fund (Draws)
A construction loan funds through a draw schedule. The lender releases money in stages as completed work is inspected, and you pay interest only on the amount drawn, not the full commitment. That keeps early carrying costs low while the project ramps.
Pricing is often similar to bridge debt, in the 9 to 12% range or Prime plus a spread, with 12 to 24 month terms. Lenders size to loan-to-cost, frequently up to 80 to 85% LTC, and require a detailed budget, plans, and a qualified general contractor before they commit.
Timing, Draws, and Cost Comparison
The key differences:
- Funding: bridge lump sum at close, construction released in draws
- Interest: bridge on full balance, construction only on drawn funds
- Use: bridge for existing property, construction for ground-up or heavy rehab
- Leverage: bridge 65 to 80% LTV, construction up to 80 to 85% LTC
- Term: both commonly 12 to 24 months
- Requirements: construction needs budget, plans, and a general contractor
When to Choose a Bridge Loan
Choose a bridge loan when the building already stands and your plan is about time, not construction. Buying a property with below-market leases, waiting out a lease-up, or fixing a minor issue before a permanent refinance all fit a bridge loan.
If the work is cosmetic or the property is stabilized enough to hold as-is, the simpler lump-sum structure beats the paperwork of a draw schedule.
When to Choose a Construction Loan
Choose a construction loan when you are building from the ground up or doing a heavy renovation that changes the structure. The draw schedule means you only pay interest on what you have spent, which keeps costs down through a long build.
It is the right tool when you have plans, a budget, and a contractor ready. Ground-up development, a major gut rehab, or an addition all call for construction financing rather than a bridge loan.
How CapitalAx Structures the Right Loan
CapitalAx places both bridge and construction debt across a national platform of more than 350 lenders. We look at your plan, decide whether a lump sum or a draw structure fits, and quote the option that keeps your carrying cost lowest. We have closed land, hotel conversion, and repositioning deals, so we know how each structure performs from close to exit.
Frequently Asked Questions
Can I use a bridge loan for construction?
A standard bridge loan is not built for ground-up construction because it funds as a lump sum with no draw schedule or inspection process. It can cover light, cosmetic work on an existing building. For structural work or a ground-up build, a construction loan with staged draws is the correct tool.
Do I pay interest on the full construction loan?
No. A construction loan charges interest only on the funds you have actually drawn, not the full commitment. As the lender releases money against completed and inspected work, your interest cost rises in step with the project, which keeps early carrying costs lower than a lump-sum bridge loan.
Which has higher leverage?
Construction loans are usually sized to loan-to-cost, often up to 80 to 85% LTC, which can mean more dollars relative to your equity on a build. Bridge loans are sized to loan-to-value at 65 to 80%. The better leverage depends on whether cost or value is the higher number on your deal.
What happens when the term ends?
Both are short-term loans that need an exit. A bridge loan typically refinances into permanent debt or is paid off by a sale. A construction loan converts or refinances into permanent financing once the project is complete and stabilized. Line up that take-out before the term runs out.