Commercial Real Estate Bridge Loans Insider’s Guide

You may have come across commercial real estate bridge loans if you’re looking for business funding to purchase or finance a commercial real estate project. Bridge loans for commercial real estate are a standard financing option for investors and developers seeking to finance time-sensitive projects. This article will cover all you need to know about commercial real estate bridge loans.

What Is a Commercial Bridge Loan?

Commercial bridge loans are a particular form of financing that are distinct from other kinds of loans. Bridge loans, also known as bridge financing, swing financing, or gap financing, are used to finance an imminent opportunity, most typically in real estate. 

Commercial bridge loans, as the names suggest, are used to “bridge the gap” between a business’s existing need for funding and a longer-term financing solution. They are short-term loans intended to finance a real estate acquisition or remodeling while you are arranging a long-term funding source.

Individuals usually use bridge loans to bridge the gap between purchasing a new house and selling their current one. But, bridge loans employed by a business—for commercial purposes—are particularly referred to as commercial bridge loans.

How Do Commercial Bridge Loans Work?

These loans may operate differently based on your unique demands and the lender you’re working with. In general, you should seek a commercial bridge loan if faced with an immediate real estate opportunity.

Getting a commercial real estate bridge loan would offer you the funds to capitalize on the opportunity immediately. You could acquire more inexpensive, long-term financing or refinance your existing business loan. Commercial bridge loan lenders typically need you to put up your real estate property or investment as collateral and offer financing for very short periods.

The loan amount offered by commercial bridge loan lenders is often determined by the property you are acquiring or remodeling. Lenders will assess this asset in terms of loan-to-value ratio (LTV) or after-repair value ratio (ARV) and issue a loan amount ranging from 70% to 80% of the property’s valuation.

A commercial real estate bridge loan from a bank will have higher interest rates than conventional bank loans, ranging from 6% to 11%. If you use an alternate lender, your rates could range from 7% to 30%. Bridge loans are likely to have higher fees than other types of loans. You’ll likely have to pay an origination fee and appraisal or additional fees.

What Are Commercial Bridge Loans Used For?

Investing in Commercial Real Estate

Commercial real estate bridge loans enable you to capitalize on an urgent real estate opportunity. Assume, for example, that a prime storefront in a major shopping district in your town is set to go on the market. 

A commercial bridge loan might give you the financing you need to purchase the storefront immediately. After securing your storefront with this financing, you can refinance it with a more modest commercial real estate loan, which will likely take some time to identify, apply for, and qualify for.

Getting a Business Ready Before a Planned Acquisition

Although bridge loans are most typically used for real estate, they can also be utilized for various other purposes. Assume your company is in the process of acquiring another company. Interim financing, in this instance, commercial bridge loan financing, can be used to gain access to funds until the acquisition is completed.

This situation often meets the criteria for bridge financing because your business has a prearranged impending supply of funding—the buyer—to exit the short-term financing in the near future. 

The use of funds to sustain your business until you receive the payoff from the acquisition qualifies it as a type of commercial bridge financing, even though the loan is never legally refinanced in this scenario.

Getting More Inventory for Your Business

Consider a scenario where you discover a sizable liquidation sale of inventory you regularly stock. In this case, you’ll likely want to refill inventory at a lower price. In this situation, you’ll need fast access to substantial funds.

As a result, you may need to obtain short-term financing in the form of a commercial bridging loan to complete this transaction. Following the acquisition of inventory, you can refinance your bridge loan with a longer-term, more affordable business loan.

Looking for another type of commercial real estate loan? Check out our updated 2023 guide to commercial real estate loan types, here.

What You Should Look For in a Commercial Bridge Loan

If you feel a commercial bridge loan may be able to satisfy your business finance needs, there are a couple of things you should consider before beginning your search. You should, of course, be on the lookout for the same loan features you would for any other form of loan, such as interest rates, periods, loan amounts, fees, lender reputations, etc.

But, when using this kind of interim finance, you should pay close attention to two essential qualities.

Funding Time

Any commercial bridge loan you are thinking about must be funded soon enough for you to use the money for your immediate expense. Hence, you might need to search beyond conventional lenders based on your timeframe. 

Because banks are notoriously slow to fund business loan applications, it may be worthwhile to investigate your commercial bridge loan options from alternative lenders, who sometimes can approve your application in as little as one day.

Prepayment Incentives

As this loan is transitory, your commercial bridge loan should provide some prepayment incentive. This way, you will be motivated to repay the loan early. For example, if you take out an amortizing bridge loan, paying it off early will save you cash by preventing interest.

If, on the other hand, you take up a commercial bridge loan with a factor rate—which generally means you’ll pay a fixed amount of interest no matter what—make sure it includes a prepayment discount. As a result, if you must pay a hefty prepayment penalty for paying off your loan early, you may want to keep looking into other choices.

What’s the Best Way to Find a Commercial Real Estate Loan?

The best way to find a commercial real estate loan is to identify lenders specializing in commercial real estate financing, prepare your documents, and then apply for loans with various lenders. Examine the loan options and terms thoroughly to find the best fit for your circumstances.


At the end of the day, while commercial bridge loans are a savvy solution to frequent financial problems, it’s crucial to note that they also carry some risk. Businesses frequently take up commercial real estate bridge loans and cannot repay the high-interest debt. 

As a result, if you’re thinking about taking out one of these loans, you should be sure that your investment will pay off and that you can repay the debt you’ve taken. Before deciding on a business bridge loan, consider all your financing choices. You should examine several products to discover the cheapest and most suitable funding for your company.


March 22, 2023