A short-term loan that carries a newly built or newly bought commercial property until it is leased and earning enough to be sold or refinanced with a permanent loan.
The OCC handbook describes a bridge loan as short-term financing that lets a newly constructed or acquired commercial property reach stabilization. It says bridge loans are usually written for up to three years, long enough for lease-up and for income to settle at a level that supports a sale or a permanent loan.
So the lender is underwriting two things at once: the property as it stands today and the property it is expected to become. The handbook says the income and value assumptions should be well supported and carefully analyzed. Expect questions about signed leases, the rents nearby buildings are getting, the budget for any work, and who will make the permanent loan at the end.
A bank may also write one facility that starts as a construction loan and converts to bridge financing for the expected stabilization period. The loan may include extension options, and the handbook says their length should be consistent with the projected time to build and lease the space.
How it shows up in the data here
No public file tags a loan as a bridge loan. A bank's bridge loans on finished buildings sit inside its multifamily or non-owner-occupied balances held, and one that still funds work sits in construction. Compare lenders by those books at investor CRE lenders and multifamily lenders. Debt funds, which make many bridge loans, file no call report and appear here only where they show up in HMDA or SBA records.
Go further
- Investor CRE lenders by state: Lenders holding loans on leased commercial property.
- Debt yield calculator: Test the exit: income at stabilization against the loan.
- Debt yield calculator: Cash flow over the loan. The one ratio that ignores the rate, the amortization and the cap rate.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- Investor commercial real estate loan checklist: On an investor property the rent pays the loan. The package is the evidence for the rent: who pays it, for how long, what it costs to collect, and who stands behind the borrower if it stops.
Related terms
- Mini-perm: A medium-term loan, shorter than a permanent loan, that a bank makes on a finished property so the owner has time to lease it up before long-term financing.
- Permanent loan: A longer-term loan on a finished, leased property that replaces the construction or bridge loan and is repaid from the property's income.
- Take-out loan: The permanent loan that pays off a construction loan, or the commitment from a lender to make that loan once the project is finished and leased.
- Lease-up: The period after a building is finished or renovated while it fills with tenants and its income climbs toward a stable level.
- Value-add: Buying an underperforming property and raising its income through renovation, repairs or stronger management. Lenders call it repositioning or rehabilitation.
- Debt fund: A private investment fund that makes or buys loans with money raised from investors, instead of taking deposits the way a bank or credit union does.
- As-stabilized value: An appraiser's estimate of what a property will be worth on the future date it is projected to reach stabilized occupancy.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.