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A Commercial Real Estate Bridge Loan is a short term loan used to gap capital needs while permanent financing is secured or the asset is liquidated. Investors and Developers use bridge loans for many different reasons including quick closings which permanent financing cannot meet, renovations, down payments, taxes, etc… They are usually higher in cost because the loan is primarialy based on the asset not the borrower which is a higher risk loan.
Unlike permanent financing, where loans are funded based on the loan-to-value (LTV) ratio, commercial bridge loans are often based on the loan-to-cost (LTC) ratio or after-repair value (ARV). Lenders will consider a property’s current condition, renovation plans, and market conditions before approving or rejecting a project.
Because these loans are based on a property’s future value, they carry more risk to the lender than permanent financing. Pricing will be determined based on the level of risk involved, with higher-risk projects carrying a higher interest rate. Because conditions can vary widely with commercial bridge loans, terms will also vary considerably based on the factors listed above.
A commercial bridge loan can allow a borrower to purchase a commercial property at a steep discount due to the property’s poor condition or the market conditions surrounding the property.
Lenders will assign a TC for the renovated property, including the purchase price and the cost of the needed improvements. This will likely be the limit to which the customer can borrow. In most cases, the borrower will be limited to 80% of the LTC value for the commercial bridge loan.
The renovated property can then be sold for a higher value, allowing the borrower to pay off the bridge loan and make a profit on the project.
There are other ways to use a commercial bridge loan:
While documentation varies for each project, the following list of documents may be required by the borrower at the time of application:
Here is a short list of items that are considered when applying for a commercial real estate bridge loan:
Debt Service Coverage Ratio
Our team of experienced loan officers can help you create a program that meets your commercial financing goals! We handle bridge loans, interim financing, and programs for small and medium sized businesses. We finance a variety of commercial properties, including:
Purchase, refinance and construction/remodeling programs are available.