A commercial bridge loan is a type of short-term financing that’s used to fund an immediate opportunity, typically in real estate. Unlike other small-business loans, commercial bridge loans are specifically used to “bridge the gap” between your current need for capital and a more long-term financing solution.

How do commercial bridge loans work?

Commercial bridge loans can be issued by banks and online lenders as well as private lenders that specialize in commercial real estate. In general, lenders offer customized loan structures based on your individual needs, with repayment terms that can range up to three years.

Bridge loans tend to be secured with collateral — usually the real estate you’re looking to purchase or renovate. The value of your collateral affects the loan amount you’re eligible to receive.

Commercial bridge loan lenders typically use the loan-to-value ratio or loan-to-cost ratio to determine how much capital they’re willing to offer. These calculations also help them assess the risk of lending to your business.

Because commercial bridge loans are directly connected to the value of your collateral, some lenders may not rely as heavily on traditional loan requirements when evaluating your application.

As a result, however, these short-term loans tend to have higher interest rates than other business loan options. These loans may also require additional fees, such as processing fees, appraisal fees and escrow fees, among other real estate costs.

Uses for commercial bridge loans