7 Best Commercial Bridge Loans
A commercial bridge loan may offer the quick, short-term financing you need to avoid missing out on a profitable business opportunity.
Commercial bridge lenders at a glance
What is a commercial bridge loan?
Commercial bridge loans are a type of temporary short-term business funding. These loans act as a “bridge” — hence the name — to help cover a funding gap in the interim until you secure more permanent financing. Because of this, bridge loans commonly need to be repaid in several months to a few years, a much shorter time frame than many other types of small business loans.
The types of lenders who may offer bridge loans include online or alternative lenders and hard money business lenders. Bridge loans are less commonly offered by a credit union or a bank. Once you qualify, funding is usually provided within a week, but it may take longer if the loan is secured by commercial real estate.
Uses for commercial bridge loans
Businesses can use a bridge loan for any short-term funding need while waiting for long-term financing or another source of revenue to become available. Each lender will also have its own restrictions regarding how borrowers can use the funds.
Some common uses for commercial bridge loans include:
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Buying real estate
Commercial real estate bridge loans are used to act swiftly on a real estate deal. For example, an investor might want to purchase a vacant multi-family building, but may be unable to qualify for long-term financing until the building starts collecting rent from tenants. -
Renovating property
Businesses can use bridge financing to pay for renovations to a brick-and-mortar office, restaurant or retail store until long-term financing becomes available or revenue increases as a result of the renovated space. -
Fix-and-flip project
Some real estate investors buy distressed residential homes in order to remodel and sell them for profit. A shorter-term loan makes sense for these projects because the investor can use the proceeds from the sale to pay off the loan. -
Business expansion or acquisition
An opportunity to expand your business or acquire another business could produce future revenue — but you may need funding for the expansion or acquisition before the strategy pays off. -
Paying for emergency repairs
If your business is waiting on an insurance claim payout, a commercial bridge loan can help you pay for repairs to stay up and running in the meantime. -
General working capital
Whether you’re looking to purchase bulk inventory, pay staff while you wait to receive overdue invoice payments or cover operating expenses during your slow season, a bridge loan can help.
If your business needs funding quickly, a commercial bridge loan is one of your options, but it isn’t right for everyone.
Before you pursue a bridge loan, consider how much you need to borrow, how you plan to use the funds and how long you’ll need to realistically repay the debt. Commercial bridge loans are a type of short-term financing, so you’ll need to be prepared to pay off the loan in less time. Otherwise, any assets you offered as collateral could be seized by the lender.
In some cases, bridge loan terms could be as short as just three months. This could potentially give you enough time to find more permanent financing, but you’ll need to be careful. If you aren’t able to secure affordable, long-term financing before the end of your bridge loan term, you could be forced to turn to more expensive borrowing options, which could put an even greater strain on your cash flow.
Pros and cons of commercial bridge loans
PROS
- Can allow businesses to take advantage of lucrative, time-sensitive opportunities while they wait for long-term funding
- May provide faster funding than traditional bank loans or SBA loans
- May be easier for real estate investors to qualify for than a traditional mortgage
CONS
- Interest rates are typically higher than other types of business loans
- Repayment terms are short, usually between a few months and a few years, which can strain your business budget
- Often secured by collateral, which puts an asset at risk
How to get a bridge loan
The process of getting a commercial bridge loan varies by lender, but here are the general steps you’ll need to take.
1. Get multiple quotes
If you’ve decided a bridge loan makes sense for your business, take some time to get several quotes and compare commercial bridge lenders. The lenders on this page are a good place to start, but you could also look online for any other lenders that meet your criteria, reach out to your bank directly or get matched with potential lenders through LendingTree.
As you compare your options, pay close attention to eligibility and collateral requirements, which can vary significantly between lenders. Some may be willing to work with startups and bad credit borrowers, while others may prefer to work with more established businesses. Some lenders also set limitations on how you can use the loan funds, so you’ll need to make sure you’re choosing the right lender for your needs.
2. Submit your application
Once you’ve found a lender with a rate and terms you’re happy with, it’s time to start the application process. Many small business lenders accept loan applications online, though some may require a phone call or in-person meeting to kick things off.
To submit your bridge loan application, you’ll need to provide documents that showcase your business finances and demonstrate your ability to repay the loan. Required documents vary between lenders, but may include:
- Copies of your business plan
- Copies of your business licenses and permits
- Personal and business tax returns
- Business bank statements
- Profit & loss statements
- Balance sheets
- Information on collateral, such as a valuation of real estate or equipment
3. Prepare for inspections and appraisals
During the underwriting process, your lender will thoroughly analyze your information, including the financial documents you provided. If you’re buying commercial real estate, the property itself will also need to be examined. Most commercial bridge lenders require an on-site tour of the property. Some may send their own representatives to accomplish this task, while others may rely on third-party appraisals.
A valuation may also be required if you’re using equipment or real estate as collateral to secure your loan.
4. Review loan terms
If you’re approved for a bridge loan, your lender will provide you with a business loan agreement. This legally binding document includes all the details of your loan, including information on rates, terms and conditions. Make sure you understand all the terms and fees associated with your loan before signing.
If you come across unexpected fine print, talk with your lender to learn more. If you decide not to go through with a loan agreement, you can decide to apply with a different lender instead.
5. Close on your loan
Your lender will guide you through the closing process, including filling out paperwork and paying any upfront fees. Closing can take as little as one or two weeks or up to several months, depending on the lender and whether the loan is secured or unsecured.
How to compare commercial bridge loans
As you research commercial bridge lenders to find the best option for your business, consider the following factors:
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Rates and fees
Make note of interest rates and any additional fees to compare the cost of borrowing between lenders. Fees might include origination fees, third-party appraisal fees and prepayment penalties. -
Repayment terms
Consider your exit strategy and choose a lender that offers a repayment term and schedule that will be manageable for your business. -
Lender reputation
Consider the lender’s experience and look for customer reviews. Make sure the lender is licensed to lend in your state. -
Closing timeline
If you need a fast business loan, consider the time to funding with each lender. Some may offer financing as soon as the same day you apply. -
Refinancing and extension options
Consider whether you want the option to refinance with the same lender or extend the loan if you need more time for repayment. -
Down payment requirements
If you’re purchasing property, consider the amount of money you’re able to put down. Bridge lenders set maximum loan-to-value (LTV) ratios, which dictate the percentage of the purchase price or after-repair value the lender is willing to finance. These requirements directly impact down payments. For example, if a lender finances up to 75% of the purchase price, you can expect to need a down payment of 25% or more.
Our methodology
We reviewed more than 20 lenders to determine the best commercial bridge loans. To make our list, lenders had to meet the following criteria:
- Rates and terms: We prioritized lenders with competitive fixed rates, fewer fees and greater options for repayment terms.
- Funding speed: We favored lenders that have a quick application process and fast closing times, eliminating any options with a minimum closing time that is longer than two weeks.
- Loan-to-value: When selecting commercial real estate lenders, we prioritized lenders with high loan-to-value ratios to keep the upfront costs of borrowing low.
- Repayment experience: We considered each lender’s reputation and business practices, favoring lenders that offer reliable customer service and provide unique perks to customers, like ongoing support or refinancing opportunities.