Understanding Bridge Loans
Bridge loans provide temporary real estate financing during the period between an immediate capital need and a future sale, refinance, stabilization, or permanent financing event.
These loans can help borrowers move forward when a property or transaction does not yet meet the requirements of a conventional or long-term lending program. The financing is generally short-term and is supported by a clearly defined repayment or exit strategy.
Bridge financing may be used to
- Acquire a property quickly
- Complete repairs or improvements
- Refinance maturing debt
- Resolve a temporary financing gap
- Prepare a property for sale
- Complete lease-up or stabilization
- Finish construction or renovation
- Transition into permanent financing
- Access equity before a future transaction
Repayment and Exit Strategy
Bridge loan underwriting may consider the property’s present value, projected value, existing debt, borrower equity, property condition, income potential, requested loan amount, and anticipated repayment source.
Because these loans are intended to be temporary, the proposed exit strategy is one of the most important parts of the review. The borrower should be able to explain how the bridge loan will ultimately be repaid. Common strategies include selling the property, refinancing after improvements, obtaining permanent financing, completing a pending transaction, or using proceeds from another documented source.
Important Program Considerations
Terms, leverage, pricing, and closing requirements depend on the transaction and the level of risk involved.
Information to Prepare
To begin a review, provide the property type, location, current value, requested loan amount, intended use of funds, existing liens, required closing date, and the specific event expected to repay the bridge loan.