A bridge loan works by giving a business short-term capital, typically for a few months to three years, until a permanent source of money arrives, such as a long-term mortgage, a new credit facility, an SBA 504 loan, a property sale or an equity raise.
This article covers commercial and business-purpose bridge loans only. It does not cover residential bridge loans that homeowners use to buy a new house before selling the current one. Below, Commercial Finance Partners explains how bridge finance loans are structured, what they cost and how the exit is planned from day one.
What Is a Bridge Loan in Commercial Finance?
A bridge loan is interim debt sized to a specific gap in time. Lenders underwrite two things above all: the collateral or business strength behind the loan, and the credibility of the exit that will repay it.
In commercial finance, bridge loans fall into two broad groups, and Commercial Finance Partners arranges both:
- Commercial real estate bridge loans fund the purchase, renovation or refinancing of income-producing or owner-occupied property until a permanent mortgage or sale. See our real estate bridge loans under Real Estate Loans.
- Business bridge loans cover a temporary funding gap tied to business needs, such as a bridge to a senior credit facility, an equity raise or a liquidity event. See our Term Bridge Loans under Term Loans.
Real Estate Bridge Loans vs. Term Bridge Loans: Which Fits?
The two products share a structure but serve different customers.
| Feature | Real estate bridge loans | Term Bridge Loans |
|---|---|---|
| Parent category | Real Estate Loans | Term Loans |
| Typical borrower | Property owners, investors and developers | Operating businesses with a short-term funding gap |
| Common uses | Purchase, renovation, lease-up or refinancing of commercial property | Bridge to a senior credit facility, equity raise, liquidity event or permanent financing |
| Typical exit | Permanent commercial mortgage, SBA 504 loan or sale | New credit facility, term loan, equity or asset sale |
For the Term Bridge Loans program, the Commercial Finance Partners site lists loan amounts from $500,000 up to $10,000,000, terms of 3 months to 3 years, rates of 10% to 24%, and funding typically in 2 to 4 weeks. Both personal-guarantee and non-guarantee options are available, and the loan can be senior or subordinated debt.
Example 1: Bridging a Commercial Property Purchase
The figures below are hypothetical and use assumed terms, for illustration only.
An investor agrees to buy a partly vacant warehouse for $4.0 million and plans $400,000 of improvements to lease the empty space. A permanent lender will not size a loan on the current, half-empty rent roll, and the seller wants to close in 30 days.
- Total project cost: $4.4 million
- Bridge loan at an assumed 70% of cost: $3.08 million; investor equity: $1.32 million
- Assumed interest-only rate of 11%: about $28,233 per month, or $338,800 over 12 months
- Assumed 2% origination fee: $61,600
After 12 months the building is leased and appraises at $5.2 million. A permanent loan at 70% loan-to-value, or $3.64 million, repays the $3.08 million bridge balance and returns part of the investor’s equity. If the lease-up had stalled, the bridge would need an extension or a lower-leverage refinance, which is why the exit is tested at underwriting.
Example 2: Bridging to a New Senior Credit Facility
A manufacturer is replacing its bank line with a larger asset based lending facility. The new lender needs a field exam and equipment appraisal, so closing is about 90 days away. Meanwhile, the company needs $1.5 million to fund materials for a large confirmed order.
- Bridge loan: $1.5 million for an assumed 9-month term
- Assumed rate of 14%, within the 10% to 24% range on our Term Bridge Loans page: $17,500 per month, or $157,500 over 9 months
- Assumed 2% origination fee: $30,000
- Total estimated cost: about $187,500
When the asset-based facility closes, its first advance pays off the bridge. The cost is justified only if the margin on the order, plus the value of keeping the customer, clearly exceeds $187,500.
What Does Commercial Finance Partners Review Before Structuring a Bridge Loan?
For real estate bridge loans, Commercial Finance Partners assesses three things before it structures the loan:
- Project viability: the purchase, renovation or refinancing the loan will fund.
- Collateral value: the value of the property behind the loan.
- Exit strategy: how the loan will be repaid.
Loan durations and repayment schedules can be customized to align with the property exit plan. For Term Bridge Loans, customized amortization is available, and Commercial Finance Partners structures them around the borrower’s business needs.
How Do You Plan the Exit Before the Bridge Closes?
The exit is the most important part of any bridge loan. Plan it before you sign the term sheet and test what happens if it takes six months longer than expected. Common exits include:
- A permanent mortgage: conventional commercial real estate loans once the property is stabilized.
- An SBA 504 loan: the SBA 504 loan program offers fixed-rate financing for owner-occupied real estate with terms of 10, 20 or 25 years, and the 504 eligible project costs rule allows repayment of interim financing. A typical 504 project is funded 50% by a lender, up to 40% by a Certified Development Company and at least 10% by the borrower.
- A term loan or credit facility: one of the business term loans, or an asset-based revolver sized to receivables and inventory.
- A sale or capital event: the sale of the property or another asset, an equity raise or a recapitalization.
Using a Bridge Loan Ahead of an SBA 504 Loan
SBA rules allow a 504 project to use interim financing for all project costs except the borrower’s contribution (13 CFR 120.890), and repayment of interim financing, including points, fees and interest, is an eligible use of 504 loan proceeds (13 CFR 120.882). For how 504 compares with 7(a), see our guide SBA 504 loan vs. 7(a).
The rules also set conditions on the interim lender. The financing cannot come from any SBA program, and the lender cannot be the borrower or an associate of the borrower. Before the 504 debenture is issued, the interim lender must certify the amount disbursed (13 CFR 120.891).
When Is a Bridge Loan the Wrong Tool?
A bridge loan adds cost and deadline pressure, so it is a poor fit when:
- There is no identifiable exit, or the exit depends on events outside your control
- Permanent financing is available now on acceptable terms and the timing works
- The need is ongoing working capital, which a revolving line handles better
- The business plan would not survive a higher rate or a six-month delay
Frequently Asked Questions
What are the terms of Commercial Finance Partners’ Term Bridge Loans?
Term Bridge Loans from Commercial Finance Partners range from $500,000 up to $10,000,000, with terms of 3 months to 3 years and rates of 10% to 24%. Funding typically takes 2 to 4 weeks. Personal-guarantee and non-guarantee options are available, the loan can be senior or subordinated debt, and customized amortization is available.
What can Commercial Finance Partners’ real estate bridge loans be used for?
They provide interim funding to purchase a new property, renovate an existing one or refinance short-term obligations, and they can also be used for short-term working capital. Developers, investors and businesses often use this kind of funding to move quickly on property transactions.
Can an SBA 504 loan repay a bridge loan?
It can repay interim financing on an eligible 504 project. SBA rules list repayment of interim financing, including points, fees and interest, as an eligible 504 project cost (13 CFR 120.882). The interim financing can cover all project costs except the borrower’s contribution, and it cannot come from the borrower, an associate of the borrower or any SBA program (13 CFR 120.890).
To discuss a bridge loan for a property purchase or a business funding gap, contact Commercial Finance Partners through our contact page, call (561) 948-0769 or compare your options with the Loan Finder.