Commercial bridge loans are short-term, often collateralized loans that cover immediate financing gaps until permanent capital arrives. They typically run 3-24 months, use SOFR-based or fixed pricing, and carry higher rates and fees. Key risks include higher cost and takeout uncertainty; choose a bridge only with a credible exit plan.

What a commercial bridge loan is

A commercial bridge loan is a short-term loan designed to cover a timing gap between an immediate financing need and a longer-term solution. Borrowers use bridge loans to keep projects moving while they finalize permanent financing, complete a sale, or arrange an equity round.

Common uses

  • Cover construction or development costs until long-term financing closes.
  • Provide working capital or meet payroll during an acquisition or restructuring.
  • Bridge the gap between purchase and permanent mortgage or sale proceeds.

Typical term, pricing, and structure

Bridge loans are usually short - commonly 3 to 24 months - and can be interest-only or amortizing. Pricing varies by lender and risk: many floating-rate loans in the U.S. are now priced off SOFR (the Secured Overnight Financing Rate) rather than LIBOR, which has been phased out for most uses. Interest can also be fixed for the term.

Rates and fees are generally higher than standard bank term loans. Borrowers often pay origination or underwriting fees, appraisal and environmental review costs, legal fees, and sometimes an exit or commitment fee. Prepayment terms vary: some bridge loans allow early payoff without penalty; others include surrender or breakage fees.

Collateral and credit support

Lenders typically secure bridge loans with business assets, real estate, inventory, receivables, personal guarantees, or a combination. Loan sizing and pricing depend on the borrower's cash-flow plan and the lender's confidence in the "takeout" - the source that will retire the bridge (permanent loan, sale, or equity infusion).

Advantages

A bridge loan lets a business avoid construction delays, preserve a purchase opportunity, or maintain operations while arranging permanent financing. It can reduce the cost of delay and enable time-sensitive transactions to close.

Risks and considerations

Bridge loans are more expensive than many permanent loans and may include substantial fees. The main risk is takeout risk: if the anticipated permanent financing or sale fails, the borrower may face refinancing under worse terms or default.

Evaluate:


  • The credibility and timing of the takeout source.


  • Total all-in cost (interest plus fees).


  • Collateral demand and personal guarantees.


Who provides bridge financing


Traditional banks, regional lenders, private credit funds, and hard-money lenders all originate bridge loans. Private lenders and specialty finance firms tend to move faster but charge higher rates.

Bottom line

A commercial bridge loan is a practical tool to close short timing gaps, but it carries higher cost and takeout risk. Use one when you have a clear, reasonably certain plan to retire the loan within the term, and compare offers for pricing, fees, and prepayment flexibility.

FAQs about Commercial Bridge Loan

How long do commercial bridge loans last?
Most bridge loans run from about 3 months up to 24 months. Exact terms depend on the transaction and lender.
Are bridge loans more expensive than regular bank loans?
Yes. Bridge loans generally carry higher interest rates and fees than traditional term loans because they are short-term and higher risk.
What benchmarks replace LIBOR for floating-rate bridge loans?
In the U.S., SOFR (Secured Overnight Financing Rate) has largely replaced LIBOR for pricing new floating-rate commercial loans.
What collateral do lenders usually require?
Lenders often take business assets, real estate, inventory, receivables, and may require personal guarantees depending on deal structure and risk.
When should a borrower avoid a bridge loan?
Avoid a bridge loan if your takeout plan is uncertain or if the total all-in cost (interest plus fees) makes the eventual financing uneconomical.

News about Commercial Bridge Loan

SPONSORED: Crescent Lenders funds $2.1M Ventura County bridge loan for multifamily acquisition - The Business Journal [Visit Site | Read More]

Allica launches bridge-to-term product - Bridging & Commercial [Visit Site | Read More]

Allica Bank launches bridge-to-term product for owner occupiers and commercial property investors - The Intermediary [Visit Site | Read More]

Brickflow adds VAT bridging finance to platform - Financial Reporter [Visit Site | Read More]

Case study: Roma completes £1.92m commercial bridge within seven days - Property Reporter [Visit Site | Read More]

Stormfield Capital Surpasses $1.75 Billion in Funded Real Estate Bridge Loans - Business Wire [Visit Site | Read More]

Using bridge loans with agency financing in multifamily - J.P. Morgan [Visit Site | Read More]

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