A bridge loan is a short-term financing option used to cover a gap in funding for commercial real estate. It acts like a bridge, providing you with funds until you can secure a
more permanent financing solution, like a long-term loan from a bank.
Here are some key characteristics of commercial bridge loans:
Short-term: Bridge loans typically have terms ranging from a few months to two years.
Fast funding: Compared to traditional loans, bridge loans can be funded much faster, often in a matter of days or weeks. This is because the underwriting
process is less stringent.
Collateralized: Bridge loans are secured by the commercial property itself. So, if you default on the loan, the lender can seize the property.
Higher interest rates: Due to the short-term nature and higher risk, bridge loans come with interest rates that are higher than conventional long-term loans.
Here are some common scenarios where a commercial bridge loan might be used:
Purchasing a property: If you find a good deal on a commercial property but don't have the time to wait for traditional financing to go through,
a bridge loan can help you secure the property quickly.
Refinancing: You can use a bridge loan to cover the existing mortgage while you secure a new, permanent loan with better terms.
1031 exchange: A 1031 exchange allows you to defer capital gains taxes when selling an investment property and reinvesting the proceeds in a similar property.
A bridge loan can be used to cover the gap between selling the old property and buying the new one.