Commercial Bridge Loans: Business Financing Options

The problem for commercial real estate investors seeking small business loans is that many long-term loan applications take a long time to process, and even longer to fund. This time frame may mean that you can’t jump on an opportunity since you don’t have the money to make the purchase.

This is where commercial bridging loans can really shine. They provide the capital you need to purchase real estate and can “fill the gap” until you secure longer-term financing.

What is a commercial bridging loan?

A commercial bridge loan is a type of loan that, as I said, bridges the financing gap. These are not traditional bank loans, but rather short-term financing that is expected to be repaid within a few months or a year.

Commercial bridge loans are often used by investors looking to buy commercial property and can be offered by banks, online lenders or hard money lenders (private lenders).

How do bridge loans for commercial properties work?

The biggest feature of commercial bridge loans is that they require collateral to secure, usually the property you are buying. A lender will assess the value of the property you are buying, looking at the loan-to-value (LTV) ratio, and offer you a loan of up to 80% of that value. You will be responsible for the rest.

Bridge loan applications are usually processed quickly, which is a plus, although they come with the downside of higher interest rates and shorter repayment periods. There may also be more fees than you would see with traditional commercial mortgages.

When to use a commercial bridging loan

So when should you consider a business bridge loan? Common uses include buying real estate, buying inventory, or hedging cash flow gaps.

Property purchase

A commercial real estate bridging loan is most often used to purchase an investment property such as mixed-use space, a multifamily building, or an office building. Because you know you will be able to generate short-term profits, taking out a high-interest loan for a few months can make sense, as you can pay it off quickly or take out a longer-term loan to cover it.

Purchase of inventory

When you sell products, you need money to buy inventory…but you need the money you’ll earn from selling it to pay for inventory! It’s a catch-22, but a bridge loan can provide you with the capital you need to buy the inventory, and once you sell it, you can pay off the loan.

Cover cash gaps

Your business may be seasonal, meaning you make most of your money in one season and then have choppy cash flow the rest of the year. A bridge loan can make sure you have the capital you need to cover your bills during those slow times.

Bridging Loan Interest Rates and Fees

As I said, a short-term loan like a bridge loan comes with higher interest rates than traditional loans, along with other fees. Interest rates range from 8.5% to 10.5%, although they can be much higher, depending on your qualifications.

In addition to the interest rates you will pay on the loan amount, you may also have to pay origination fees and other administrative costs. If you want to prepay the loan, there may also be a prepayment penalty. Read the fine print before signing up for a bridge loan and make sure you’re okay with the extra expense.

What is the maximum duration authorized for a bridging loan?

Borrowers have relatively little time to repay such a large loan. Most bridge loans are for terms of six months and at most twelve months. This means you need to have a plan to pay off the loan and secure longer-term financing by the end of that period.

How to qualify for a commercial bridging loan

Eligibility for bridge loan funding can be similar to what you would need to qualify for other types of loans, although your collateral will play a much larger role here.

Exact qualifications vary from lender to lender. They will review your credit scores, both personal and professional. If you haven’t yet learned how to establish business credit, now is a good time to do so to qualify for the loan you want.

The amount of loan you qualify for will depend on this LTV (value of the property you are putting up as collateral). Lenders may also look at your annual income to determine your eligibility.

What to look for in a commercial bridging loan

Financing options that offer the lead time that commercial bridge loans offer will cost more, although you can shop around for the best price on that bridge financing for your next investment property.

Your monthly repayment amount will be high, so make sure you can afford it.

The most important thing is to have a plan for how you will transition to the next long-term funding vine. Plan initially to apply for a longer-term loan so that you can refinance your commercial bridge loan as soon as permanent financing is in place.

Look for a lender that has a solid reputation for positive customer service, fast processing of loan applications, and lightning-fast funding.

Main lenders for commercial bridging loans

Let’s look at some bridge lenders who might be able to help you with your financing needs.

Stratton Stocks

As a national provider of commercial bridge mortgages, Stratton Equities offers financing from $200,000 to $5 million, with rates starting at 7.25%. Repayment terms are longer than most bridging loans: you can repay your loan for up to two years.

Credibility Capital

Although not technically a bridge loan program, Credibility Capital’s medium-term loan can give you up to $500,000 that you repay over one to five years. Rates start at 6.99% and there are no prepayment fees or other hidden charges.

Capital AVANA

AVANA Capital is another option for commercial bridging financing. These loans can be used for home acquisitions, purchases or improvements, or debt consolidation, among other uses, and you will have between 12 and 36 months to repay it.

Nav’s Verdict: Commercial Bridge Loans

You shouldn’t miss out on investment opportunities just because you don’t have the cash to buy commercial real estate. A commercial bridge loan could be just what the doctor ordered: you’ll get the money you need while you make longer-term financing arrangements.

This article was originally written on March 17, 2022.

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