A bridge loan is a short-term commercial real estate financing instrument, typically with an initial term of one to three years plus extension options, designed to “bridge” the gap between acquisition or repositioning and permanent financing. Bridge loans are almost always floating-rate, priced at a spread over SOFR, and structured as interest-only during the initial term. They are used when a property doesn’t yet qualify for permanent or agency financing — for example, a value-add multifamily acquisition that needs renovation to achieve stabilized occupancy and income. Bridge lenders include debt funds, banks, and specialty finance companies, and they typically underwrite to the property’s projected (rather than in-place) performance.
How It Works in Practice
Bridge loans are the workhorse of transitional CRE strategies, but they carry refinancing risk that borrowers must actively manage. Extension provisions — usually one or two 12-month options — are not automatic; they typically require meeting minimum DSCR or debt yield thresholds and may require purchasing or extending an interest rate cap. With over 60% of bridge loans currently exercising extensions rather than refinancing into permanent debt, understanding your extension mechanics is critical. Borrowers need to track extension test dates, cap expiration dates, and the cost of replacement caps well in advance. A bridge loan that can’t be extended or refinanced at maturity becomes a maturity default, regardless of the property’s performance. LoanBoss tracks these dates and covenant tests across your bridge portfolio so nothing falls through the cracks.
Related Terms
Part of the LoanBoss CRE Debt Glossary. For hedging-specific terms, see Pensford’s resources.