How Bridge Loans Work in Commercial Real Estate
Bridge loans fill the gap between acquisition and permanent financing. Here's when they make sense, what they cost, and how to exit safely.
What Is a Commercial Bridge Loan?
A bridge loan is short-term financing designed to "bridge" a gap — between acquisition and stabilization, between a maturing loan and permanent financing, or between a value-add project and a conventional refinance.
The name is literal: you're building a bridge to somewhere else. The bridge loan gets you to the destination; permanent financing keeps you there.
Typical Bridge Loan Structure
| Feature | Typical Range |
|---|---|
| Loan term | 6 to 36 months (12 months most common) |
| Extension options | Usually 1–2 six-month extensions available |
| Interest rate | Prime + 2–4%, or SOFR + 3–5% |
| Current rate range | ~9–14% depending on risk profile |
| LTV | 65–80% of current value; up to 85–90% of cost basis |
| Points | 1–3 origination points |
| Interest structure | Often interest-only during term |
| Recourse | Varies; many are non-recourse or partial recourse |
| Closing speed | 2–4 weeks (fast is the whole point) |
When Bridge Loans Make Sense
1. Acquisition timing gaps
You've found the right property, but your conventional or SBA loan won't close in time. Bridge financing closes in weeks, not months, letting you compete for deals that require speed.
2. Value-add rehab
You're buying a property at below-market value because it needs significant work — vacancies, deferred maintenance, repositioning. A permanent lender won't touch it at today's occupancy, but a bridge lender will fund based on after-repair value (ARV). Once the property is stabilized, you refinance into a conventional or SBA loan.
3. Stabilization before permanent financing
Agency lenders (Fannie, Freddie) and SBA want occupancy above certain thresholds (usually 85%+). Bridge loans carry you through lease-up so you can qualify for long-term permanent financing.
4. Refinancing a maturing loan
Your CMBS or bank loan is coming due and the market conditions, property performance, or credit environment make refinancing into permanent debt difficult right now. A bridge extends your runway while you fix the issue.
5. Construction or heavy value-add
Development or heavy rehab projects that don't qualify for SBA or conventional loans until they're complete. Bridge + construction financing hybrid.
Who Offers Bridge Loans?
Bridge loans come from a different world than conventional lending:
- Debt funds — non-bank lenders that specialize in short-term CRE
- Hard money lenders — asset-based, faster, often higher rates
- Banks with CRE teams — some banks offer bridge products, usually more conservative terms
- Life companies / insurance companies — rarely, and usually for larger deals
Do not expect your community bank that handles SBA 7(a) to have an aggressive bridge product. You need lenders who understand transitional assets.
Bridge Loan Risks
Rate risk
Bridge loans are floating rate in an environment where rates can move. A rate increase during a 24-month bridge adds real cost to already-expensive capital.
Execution risk
The whole model depends on hitting your business plan. If you underestimated rehab costs or overestimated lease-up speed, you may reach loan maturity without qualifying for permanent financing.
Extension penalties
Extensions aren't free. Lenders typically charge 0.25–0.5% per extension, and they have no obligation to grant them. Read your extension clause carefully.
Prepayment complexity
Some bridge lenders have minimum interest periods (you pay 6 months of interest even if you pay off in month 2). Structure this carefully if you expect early exit.
Exit Strategies
A bridge loan with no exit strategy is a trap. Plan your exit before you sign:
Exit 1: Conventional refinance. The property is now stabilized, performing at underwritten NOI, and qualifies for bank or CMBS financing at better rates. This is the most common exit. Exit 2: SBA refinance. For owner-occupied properties, an SBA 504 or 7(a) takeout provides long-term fixed rate financing after stabilization. Exit 3: Agency refinance. Multifamily properties can exit into Fannie Mae, Freddie Mac, or FHA/HUD permanent loans after stabilization. Exit 4: Sale. If the value-add play worked, you sell at the stabilized value. The bridge loan gets paid off at closing. Exit 5: Extension. If you're close but not quite there, most bridge lenders will extend — for a fee. Don't rely on this, but know it's available.Is a Bridge Loan Right for You?
Bridge financing makes sense when:
- Speed matters and you can't wait 60–90 days for conventional financing
- The property doesn't yet qualify for permanent debt (occupancy, condition, income)
- You have a clear, time-bounded plan to reach permanent financing
- The economics of the deal work even after bridge loan costs
- You have reserves or a plan to cover shortfalls if the timeline slips
Bridge financing is the wrong choice when:
- You don't have a clear, credible exit
- The deal only works at permanent financing rates (bridge costs will bleed you)
- You're using it to delay an inevitable problem (a bad deal is a bad deal)
Working on a deal that needs bridge financing? Tell us about it → and we'll connect you with our bridge lender network.
Want the full deep-dive? Read our comprehensive Bridge Loan Guide: Costs, Rates & How to Qualify → — 3,000+ words covering cost breakdowns, comparison tables, qualification requirements, and 5 real use cases.
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