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A bridge loan is a short-term loan that finances a property during a transitional period — while the borrower is waiting to sell another property, while a renovation is in progress, or while the borrower is transitioning to permanent financing. Bridge loans prioritize speed and flexibility over rate. They are used when a conventional loan would be too slow or too restrictive for the situation.
Bridge loans get their name from what they do: they bridge a gap. The borrower needs capital now and has a known event coming — a sale, a refinance, a lease-up — that will provide the exit. The bridge loan covers the interim period.
Common scenarios:
Acquiring a property before selling another: An investor wants to buy a new property immediately but has equity tied up in a property they are in the process of selling. A bridge loan provides purchase capital against the equity in the existing property, allowing the acquisition to happen before the sale closes.
Transitioning from construction to permanent financing: A construction loan paid off the build; the borrower needs a bridge loan to hold the stabilized property while securing long-term financing or while the property seasons to meet conventional requirements.
Value-add multifamily or commercial: A borrower buys an underperforming property, improves occupancy or operations, then refinances into permanent financing once the property is stabilized. The bridge loan covers the acquisition and initial improvement period.
Opportunistic acquisitions: A deal needs to close in 10 days. Conventional lending will not move that fast. A bridge loan closes in days and the borrower refinances out later.
Both are short-term hard money loans. The practical differences:
In practice, many lenders use the terms interchangeably for light rehab residential deals. When in doubt, describe the deal clearly and let the lender tell you which program applies.
Bridge loan underwriting focuses heavily on the exit strategy — because without a clear, credible exit, the lender is holding a loan on a transitional asset indefinitely.
Exit credibility: If the exit is a sale, what is the market evidence that the property will sell at the projected price in the timeline stated? If the exit is a refinance, does the property currently qualify or will it qualify after stabilization? Has the borrower already had a refinance conversation with a permanent lender?
Property value: Bridge loans are typically underwritten to current "as-is" value for stabilized properties, or to projected stabilized value for value-add plays. Expect a lender appraisal.
LTV: Bridge lenders typically cap at 65-75% LTV on commercial and multifamily. Residential bridge programs may go higher depending on the deal and borrower profile.
Borrower experience and financial strength: Bridge loan lenders — especially on commercial deals — want to see that the borrower has navigated similar situations before. Liquidity matters: if the stabilization takes longer than expected, does the borrower have reserves to carry the loan?
In the commercial and multifamily space, bridge loans are the standard tool for value-add acquisitions. An investor buys a 24-unit apartment complex that is 60% occupied, with below-market rents and deferred maintenance. They cannot qualify for permanent agency financing at current occupancy. A bridge lender funds the acquisition, the borrower stabilizes the property over 18-24 months, and then refinances into a permanent loan (Fannie, Freddie, CMBS, or a bank) once the occupancy and net operating income support it.
Commercial bridge loans typically involve:
Terms vary significantly based on deal size and complexity:
Bridge loans are expensive capital. They make sense when speed and flexibility matter more than rate, and when a clear near-term exit makes the higher cost temporary.
They do not make sense for long-term holds where the borrower has not thought through the exit. A bridge loan on a property with no clear exit strategy is a problem waiting to happen. The lender's 12-month term comes due; the borrower cannot refinance; the extension costs more; the deal deteriorates.
Always underwrite the exit before you underwrite the entry.
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