What is a commercial bridge loan?

Commercial bridge loans are very specific types of financing, and they differ from other loans in many ways. Typically, bridge loans are used to finance an immediate opportunity, such as a real estate purchase. Bridge financing is also called swing or gap financing. A commercial bridge loan is used to fill the void between a business’s current financing needs and a longer-term financing solution.

However, business bridge loans as a concept can be somewhat confusing since the term “bridge” describes only how a borrower uses the loan, not any specific features or characteristics about the loan itself. As long as you use it in a certain way, any type of business loan could be a commercial bridge loan.

When it comes to business bridge loans, it’s safe to say you’re most often talking about commercial real estate bridge loans. Basically, these loans are used to finance a real estate purchase or renovation as soon as possible while you arrange a long-term funding source. Many individuals use bridge loans to bridge the gap between purchasing a new home and selling their existing one.

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Obviously, commercial bridge loans refer to loans used by businesses for commercial purposes. To help you better understand commercial bridge loan financing, here are some key points:

Commercial bridge loans are short-term or interim financing—terms, therefore, are usually on the shorter side—between a few months and a year.
Collateral is typically used to secure these loans—most often, the real estate you’re purchasing or renovating will serve as collateral on the loan.
Although lenders will consider traditional business loan requirements, the value of your collateral will also play a large role in whether or not you qualify.
Bridge loans are usually fast-to-fund—but can come at high interest rates.
Commercial bridge loans can be issued by banks, alternative, online lenders, as well as private lenders, like hard money lenders.

How Do Commercial Bridge Loans Work?

You may find that these loans operate differently depending on your specific needs and the lender you’re working with. Commercial bridge loans, however, might be the right choice when you’re faced with an urgent real estate opportunity. You would receive the funding you need to take advantage of the opportunity immediately – and then you would be able to find another more affordable, long-term financing source or refinance your existing business loan. Typically, you’ll find that lenders offering commercial bridge loans require collateral, such as a real estate investment or investment property, and will offer fairly short terms. Additionally, commercial bridge loan lenders will typically determine the loan amount they offer based on the type of property you’re buying, acquiring, or renovating. Loan-to-value ratio (LTV) or after-repair value ratio (ARV) information will be utilized to evaluate this property, and lenders will offer a loan amount ranging from 70 to 80% of its value. You will then be responsible for financing the remaining percentage as the borrower. Banks will usually charge higher interest rates on commercial real estate bridge loans – anywhere from 6% to 11%. Depending on your lender, you could pay anywhere between 7% and 30%. Additionally, bridge loans can have a higher interest rate than some other loan types. Most likely, you’ll be required to pay an origination fee-and you may also be required to pay appraisal fees.