Commercial Bridge Loans and How They Work

By: Alejandra Torres

Borrowers come in all shapes and sizes. And no, we’re not talking about whether or not you’re currently on that Keto binge—we’re talking about your commercial loans. Believe it or not, there are multiple ways to finance your commercial properties depending on your needs. One popular option available to borrowers is commercial bridge loans.

While many investors opt for traditional long-term loans generally provided by banks, others choose the hard money route if they need to close a deal with a quick turnaround. However, a commercial bridge loan is also an essential part of commercial lending because it “bridges” the financial gap between a borrower’s current status and where they want to be in the future.

 

So What Are Commercial Bridge Loans Anyway?

In short, commercial bridge loans are a “gap funding” many borrowers choose to get between a short-term loan and a more permanent mortgage. Provided by a number of lenders, these loans tend to have shorter terms (a few months to a few years) and they require some sort of collateral.

Unlike traditional bank loans, which call for heaps of documents proving your credit and ability to pay back the mortgage, many non-bank commercial bridge lenders offer loan programs that forgo this lengthy process and instead rely more on the value of the commercial property that will serve as collateral for the loan. In that case, a borrower may receive a percentage of what the lender deems the commercial space is worth, which will provide the borrower with the funds to purchase or revamp a property and leave them to pay the remaining amount.

Keep in mind, bridge loans often have higher interest rates due to the borrower’s easier access to funds and higher lender risk!

 

Which Type of Borrowers Benefit?

These loans are geared towards investors who are ultimately looking to find a more permanent loan. Take for example, a small business owner who wants to make a purchase, but the property is currently subpar for the bank to provide a loan.

The borrower can use a bridge loan (with higher interest rates) to make repairs and eventually refinance to apply and qualify for a long-term loan with a bank or commercial loan lender that will have better interest rates and terms.

Another type of borrower that could benefit from a commercial bridge loan is one that most people are familiar with if they tune into HGTV. People who “fix and flip” properties rely on these loans to purchase fixer-upper homes that will sell for a major profit once they rehab the property.

 

Are They for Everyone?

Not necessarily. Borrowers who have thriving businesses and don’t require substantial renovations and repairs don’t need to go through the trouble of applying for a commercial bridge loan. Additionally, a small business owner who qualifies for a long-term loan and has the option to spread out the payments over a long period of time can also choose to skip out on this type of financing.

Borrowers make up different colors in the loan spectrum and although it’s the right step for some investors to opt in for a commercial bridge loan, it’s not always the appropriate step for others considering the high interest rates and short-term payments.

 

Commercial Bridge to Commercial Mortgage

After refinancing a commercial bridge loan, the next steps are to look into a permanent and long-term mortgage to maintain your property. Traditional lenders like banks may offer low rates, but they will still require rigid rules to qualify for a mortgage. Non-bank lenders offer highly-coveted interest rates with more flexibility as well as faster transaction speed.

Ready to apply for a no-fuss commercial loan? Connect with Commercial Direct, a division of Silver Hill Funding, LLC, here and one of our loan officers will be in contact shortly with more information.

Silver Hill Funding, LLC and its successors and/or assigns as their interest may appear, is the proposed lender. Commercial Direct is a division of Silver Hill Funding, LLC.

Author: Alejandra Torres

As the Content Specialist at Commercial Direct, Alejandra Torres writes and educates readers on all things business. When she’s not breaking down the steps to obtaining a commercial mortgage, you can catch her reading up on the latest market trends or watching the next big business venture on Shark Tank.

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