COMMERCIAL BRIDGE LOANS

Commercial bridge loans are a short-term financing solution that’s widely used within the real estate industry. House flippers, real estate developers and real estate investors all use these loans to “bridge” a gap when purchasing or renovating a wide array of properties. Even businesses in other industries may take out a commercial real estate bridge loan if they purchase a new property.

These loans are a type of “hard money loan,” for they’re secured by tangible property (i.e. real estate). Because of the short time frames of these loans, they’re sometimes also referred to as “swing financing” or “gap financing” for real estate.

Eligible Properties: Multifamily, Office, Retail, Hospitality, Student and Senior Housing in strong markets

Loan amount range: Minimum $500,000

Interest Rate: 7% or Higher over index

Loan Term: 12 months 36 months. Extensions are possible

Amortization: Generally Interest with some exceptions

Maximum LTV: 75% of cost (LTC) capped at 70% of the completed or stabilized value.

Recourse Non-recourse except industry-standard “bad act” carve-outs.

Prepayment: Generally allowed

Loan Exit: Fannie Mae, Freddie Mac, FHA or Commercial Backed Security Loan

In addition to their short time frames, commercial bridge loans offer several advantages compared to other loan options:

• Commercial bridge loans usually don’t take as long to underwrite, which makes it possible to close on properties faster. Being able to close faster might make an offer more attractive compared to other offers.

• Since commercial bridge loans are underwritten primarily on the basis of a property’s value, the credit requirements for these loans are much less stringent than the requirements for traditional long-term mortgages. Businesses that have bad or poor credit may still be able to obtain this type of loan.

• Interest-only commercial bridge loans allow flippers and developers to only make interest payments while working on a property, and defer the rest of the loan until a property is sold.

While commercial bridge loan’s advantages are helpful in many situations, there are a couple of disadvantages that borrowers should be aware of:

• Commercial bridge loans aren’t available for long terms, such as beyond 3 years. A more traditional loan is needed for longer time frames.

• Interest rates for commercial bridge loans tend to be higher than those of long-term, traditional loans. Paying higher interest adds up over time, although the total interest over a short-term time frame may be minimal.

• Origination fees for these loans may be higher than fees for other loans.