A commercial bridge loan is a type of short-term financing commonly used to purchase real estate. These loans are typically used if traditional long-term financing is not an option, which can occur if the borrower has bad credit or the property needs repairs.
Commercial mortgage bridge loans have eligibility criteria that are often easier to meet, and funds are commonly used to restore or renovate properties. Once completed, the loan is typically paid off and replaced with permanent, long-term financing.
Kiavi is one lender we recommend as it can provide financing with no income verification, competitive rates, and closings as fast as 7 business days.
Summary of Rates, Terms & Qualification Requirements
Rates, terms, and qualification requirements for commercial mortgage bridge loans can vary depending on your chosen lender. However, we’ve listed below some typical figures you might come across.
| Typical Rates & Terms | |
|---|---|
| Annual Percentage Rate (APR) | 7% to 10% |
| Loan Amount | Up to $100 million |
| Closing Costs | 2% to 4% of loan amount, plus a 1% to 6% origination fee |
| Repayment Term | 6 to 36 months |
| Repayment Schedule | Monthly interest-only payments |
| Funding Speed | 7 to 30 days |
| Typical Qualification Requirements | |
| Credit Score | 600-plus |
| Debt-Service Coverage Ratio (DSCR) | 1.20× to 1.40× |
| Down Payment |
|
| Time in Business | 2 years |
| Prior Flipping Experience | 0 to 3 prior flips in the last two years |
Qualification Requirements
Below, we summarize how lenders commonly evaluate various qualification criteria for commercial bridge loans. The exact items will vary from lender to lender, and a provider may not have all of these listed as requirements.
Your credit score indicates how likely you are to make payments on time. Personal credit scores generally range from a low of 300 to a high of 850, and you should have a better chance of getting approved with a score of at least 650.
Business credit scores can vary depending on the scoring model used. Exact requirements vary among lenders, with some having no minimum requirement depending on the overall strength of your loan application.
If you’re worried about getting turned down for a loan because of bad credit, our guide on what a bad credit score is goes through how credit scores are determined, what’s considered bad credit, and the steps you can take to boost your credit score.
The DSCR is a figure that measures your business’s ability to repay debt. In general, a figure above 1.20× is considered to be good. It can be calculated by taking your company’s annual net operating income and dividing it by its current year’s obligations. Alternatively, you can use our DSCR calculator.
To determine the down payment needed, lenders may use a combination of an LTV ratio, an LTC ratio, or an ARV.
- The LTV ratio measures the amount of your loan to the property’s current value. It is calculated by taking your loan amount and dividing it by the property’s appraised value.
- The LTC ratio takes your loan amount and compares it with the total cost of renovating a property. It is calculated by dividing your loan amount by the total project cost. The total project cost includes the purchase price, construction, and renovation costs.
- The ARV is calculated by taking your loan amount and dividing it by the estimated value of the property after all repairs and renovations have been completed.
Startups have a high failure rate, so getting a loan as a new business may be more challenging. Lenders consider companies with less than two years’ time in business to be startups and may charge higher rates and fees to offset the increased risk of lending to you.
Similar to time in business, lenders view borrowers with no history of flipping properties to be at a greater risk of defaulting on a loan. While it’s preferable to have at least three or more property flips in the past two years, many lenders can work with new investors.
For our recommendations, see our guide to the leading fix-and-flip loans. It contains a list of lenders with a wide range of features—including fast funding speeds and flexible eligibility criteria.
Required Documents
Just like rates and qualification requirements, the list of required documents can vary depending on the lender you choose. It can also vary based on the details of your business and the property you’re looking to purchase.
Below is a list of commonly required documents. Preparing these can save you time and help you get approved and funded more quickly.
- Personal and business tax returns (past three years)
- Income and expense statements (if available from the prior owner)
- Rent rolls
- Schedule of leases
- Executive summary
- Breakdown of renovation costs and project schedule
- Exit strategy (sale or refinance)
- Broker’s letter of value
Pros & Cons of Commercial Bridge Loans
| PROS | CONS |
|---|---|
| May have more flexible qualification requirements compared with traditional financing | Can only be used as temporary financing as they have a short repayment period |
| Can offer low monthly interest-only payments | Tends to have higher rates and fees than permanent financing |
| Have faster funding speeds compared with traditional loans | Can be more difficult to find, as there are few commercial bridge loan providers |
Who Should Consider Commercial Bridge Loans
If you need funding but can’t qualify for traditional long-term financing, a bridge loan can help. The following scenarios are common reasons why many other borrowers have applied for bridge financing. If any of them apply to you, it may be a sign that it could be a good fit for your circumstances as well.
Most traditional lenders require a property to be free of hazards to finance it. This includes any major repairs of nonfunctional areas of the home. Bridge financing, however, does not typically require this. As a result, you can use a commercial bridge loan to conduct the necessary repairs for the home to be eligible for traditional financing.
Once repairs are completed, you can then get permanent financing to pay off the commercial bridge loan, something we talk about in our article on investment property financing.
Renovating a property can raise its resale value. As a property flipper, this can be highly profitable if you can accurately estimate the total cost of repairs.
As mentioned earlier, commercial bridge loans tend to have more flexible qualification requirements. As a result, it can be a good option if the property is otherwise ineligible for permanent financing because of its poor condition, low occupancy rates, or other factors.
Traditional loans offer competitive rates and terms but typically have strict qualification requirements for things like credit scores, time in business, and income. Bridge loans have more flexible eligibility criteria, although they usually come at the cost of higher rates.
Traditional real estate loans can take as long as 30 or more days to fund. Commercial bridge loans, on the other hand, can be funded in as little as 10 days. This is largely because they have less strict qualification requirements, which allows the loans to move through a lender’s approval process more quickly.
Where to Get a Commercial Bridge Loan
In addition to checking out our recommendations of the best commercial bridge loans, you can find a commercial bridge loan from banks, credit unions, online lenders, and loan brokers. Each has advantages and disadvantages, and the best depends on what you qualify for and your business circumstances.
Local and regional banks can often have the widest range of loan offerings, including commercial bridge loans. However, qualification requirements are usually strict, with little to no room for flexibility if you fall short of any of the eligibility criteria. We’ve researched providers with a good offering of products and services in our list of the best banks for small business owners.
Credit unions are not-for-profit organizations and can, therefore, often offer more competitive rates than banks. They can also be more flexible in issuing exceptions for loan approvals if you do not meet certain criteria but can demonstrate other strengths to your loan application. One downside is that their loan terms may not be as generous as that of a bank.
You may want to see our top-recommended credit unions for small businesses for options.
Online lenders have little to no physical branch locations. With less overhead expenses, these lenders can offer some of the most competitive rates and fees available. Be sure to check out customer reviews and ratings though, as it can be more difficult to communicate with these providers online.
Brokers work with a network of lenders to match you with the best loan possible. This can save you time from having to apply separately to multiple lenders yourself. However, some brokers charge a fee for their services, and you will not know the exact loan requirements until after you apply. If you’re unsure where to find a broker, you can start with our roundup of the leading business loan brokers.
If you’ve decided that a commercial bridge loan is right for you, be sure to check out our guide on
how to get a small business loan
for tips on streamlining your loan approval process.
Frequently Asked Questions (FAQs)
Is it hard to get a commercial bridge loan?
It’s typically easier to get a commercial bridge loan compared with traditional long-term loans because qualification requirements are much easier to meet. This includes things like credit score, time in business, and income requirements.
What is the repayment term on a commercial bridge loan?
Most commercial bridge loans have a repayment term of anywhere from 6 to 36 months. Some lenders, however, allow you to apply for payment extensions if you need more time to pay off the loan balance.
How do I pay off a commercial bridge loan?
In many cases, a commercial bridge loan is paid off by getting a permanent, long-term loan and using those proceeds to satisfy the balance of the commercial bridge loan.
Bottom Line
A commercial bridge loan can give you the funds needed to purchase a property that’s otherwise ineligible for a traditional loan. This can be due to a qualification issue with either the property or the borrower. It can also occur if the loan terms needed to fund the acquisition or repair of a property are not offered by a traditional lender.
Loan proceeds can then be used to conduct necessary repairs, at which point they can be replaced with permanent financing. It can also be an option for borrowers who have been turned down for a traditional loan.
