A commercial bridge loan is a short-term loan that can be used to purchase real estate that might be ineligible for a traditional loan due to needed repairs or the presence of health or safety hazards. It can also be used to fund costs associated with repairs, upgrades, and renovations. Once the repairs or upgrades are completed, the loan is often replaced by permanent financing.
Commercial bridge loans can also have more flexible qualification requirements than traditional loans, so it may be a good option to consider if you’re unable to get approved elsewhere. Kiavi is one provider that we recommend as it can provide financing with no income verification, along with competitive rates and closings as fast as 10 days.
Who Should Consider Commercial Bridge Loans
- You want to purchase a property that requires repairs: Properties in need of major repairs are typically ineligible for traditional methods of financing. With a commercial bridge loan, you can get the funding needed to perform the necessary repairs. 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.
- You plan on renovating the property as part of a flip: 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.
- The property is ineligible for traditional financing: 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 due to its poor condition, low occupancy rates, or other factors.
- You have credit issues preventing you from getting financing elsewhere: The added flexibility in qualification requirements on a commercial bridge loan also extends to borrower eligibility criteria. This can make it a good option if you have credit issues preventing you from qualifying for a traditional loan.
- You need to close a deal quickly: The funding speed on commercial bridge loans can be as fast as 10 days, which is quicker than the average of two to four weeks for permanent financing. A commercial bridge loan can also allow you to purchase a property without first conducting certain repairs that traditional lenders may require.
- You want to develop raw land: In addition to purchasing an existing building, a commercial bridge loan can also be used to acquire raw land for further development.
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%
Up to $100 million-plus
2% to 4% of loan amount, plus a 1% to 6% origination fee
6 to 36 months
Monthly interest-only payments
10 to 30 days
Typical Qualification Requirements
Debt Service Coverage Ratio (DSCR)
1.20x to 1.40x
Time in Business
Prior Flipping Experience
0 to 3 prior flips in the last 2 years
Many factors can impact the rate you get on a commercial bridge loan. If you want to get the best rate possible, check out our guide on the best commercial real estate (CRE) loan rates.
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 is one indicator of 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, something we talk about in our guide on business credit score. Exact requirements vary among lenders, with some having no minimum requirement depending on the overall strength of your loan application.
If you have a poor credit score, our guide on what a bad credit score is and how to fix it may be of interest to you.
Your company’s DSCR is a figure that measures your business’ ability to repay debt. In general, a DSCR figure above 1.20x is considered to be good. DSCR 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 a loan-to-value (LTV) ratio, loan-to-cost (LTC) ratio, or after-repair value (ARV):
- 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. You can learn more about this in our article on the LTV ratio.
- LTC ratio takes your loan amount and compares it to 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. Our guide on the LTC ratio provides more information.
- 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. Head over to our guide on the ARV formula to learn how to determine your property’s new estimated value. It also includes an ARV calculator.
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 a startup and may charge higher rates and fees to offset the increased risk of lending to you.
Our roundup of alternative funding options to startup business loans may help in case you cannot qualify for traditional loans.
Similar to time in business, lenders view borrowers with no history of flipping properties as being 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 lenders. It includes one provider that’s optimal for those seeking bridge loans.
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. Having these prepared 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 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
|May have more flexible qualification requirements compared to traditional financing||Can only be used as temporary financing as they have a short repayment period|
|Can offer low monthly interest-only payments||Tend to have higher rates and fees than permanent financing|
|Have faster funding speeds compared to traditional loans||Can be more difficult to find, as there are few commercial bridge loan providers|
Where To Get a Commercial Bridge Loan
In addition to checking out our recommendations of the best commercial bridge loans, you can also find a commercial bridge loan from banks, credit unions, online lenders, and loan brokers. Each has its advantages and disadvantages, and the best one will depend on what you qualify for and your business circumstances.
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.
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.