What you need to know: Bridge lenders in commercial real estate mainly want to see that the deal is financially workable and that your exit strategy is realistic. Terms commonly run from 6 to 36 months, often with interest-only payments. Private Capital Investors currently provides short-term commercial financing with LTVs up to 85% and rates starting at 5.99%.
It’s not enough to show that your property produces enough income to get approved for a commercial bridge loan. Because bridge loans often finance properties that are still improving, lenders may base their decision partly on what the property is expected to earn or be worth after the work is completed.
Here are the main requirements and terms to understand before you submit your application.
What are the requirements for a commercial bridge loan?
| Requirement | What the Lender Wants to Know |
|---|---|
| LTV | How much of the property’s value you want to finance |
| DSCR | Whether current or projected NOI can cover debt payments |
| Net Worth and Liquidity | Whether you have the financial capacity to handle delays or cost overruns |
| Credit | Whether your borrowing history raises repayment concerns |
| Exit Strategy | How you will repay the bridge loan when it matures |
For unstabilized properties, lenders may still be willing to accept a weak current cash flow if you can present a believable plan to raise NOI before the bridge loan matures.
What debt service coverage ratio (DSCR) do you need for a bridge loan?
DSCR compares the property’s net operating income with its annual debt payments to determine if the property can comfortably bring in enough NOI to make its loan payments.
DSCR = net operating income ÷ annual debt service
Most traditional lenders look for a DSCR around 1.20x to 1.25x or higher. But in bridge financing, a lower DSCR is acceptable provided that the weak DSCR is demonstrably temporary.
Is your property currently vacant because you’re repositioning it for a different tenant mix, but you have a solid plan for how you’ll lease the space and bring income back?
Is it undergoing renovations right now to raise rents once the work is finished?
In these cases, the property’s NOI might not yet be enough to meet the lender’s usual coverage threshold. But bridge loan lenders specializing in commercial properties are often open to accepting DSCRs below 1.0x during the transitional period, provided the stabilized property is expected to reach approximately 1.25x once the property has been renovated and stabilized.
The Commercial real estate bridge loan lender wants to see that the property can generate enough income by the end of the bridge term to either qualify for refinancing with a bank or make a sale workable.
How much net worth do you need to qualify for a commercial property bridge loan?
It’s not uncommon for lenders to assess the financial strength of the sponsors or guarantors; in this case, you.
Some bridge lenders want the borrowers or guarantors to have a combined net worth at least equal to the loan amount, plus enough cash reserves to keep making payments if the project runs into delays. If you intend to take out a bridge loan of $10 million, you may need to show that you and your group together have a combined net worth of $10 million or more.
This is not set in stone, though, as some private lenders care more about the property’s value and how you plan to repay the loan than about your personal finances.
What credit score do you need to get approved for a commercial property bridge loan?
Bridge lenders are often not as strict as banks when it comes to minimum credit scores.
Here at PCI, we may consider borrowers with credit scores around 650 or higher when the property and equity contribution are strong.
You may be wondering why your credit score is still part of the decision. The main reason is that lenders want to know how you have handled debt in the past, which could give them a clue about how you may handle this loan.
All that said, a lower score won’t automatically disqualify you if your collateral is strong and if you’re willing to bring substantial equity into the deal. Your weak credit profile may affect the interest rate, though. The lender may also expect you to hold more reserves and/or lend you less than you originally requested.
How much can you borrow with a bridge loan?
Here at Private Capital Investors, we provide commercial real estate financing at up to 85% LTV, meaning we may finance up to 85% of the property’s value.
An 85% LTV on a property worth $5 million would equal a maximum loan of:
$5,000,000 × 85% = $4,250,000
Not all borrowers will qualify for 85%. In some cases, we may require more borrower equity when the property is heavily vacant. We may reduce the loan amount if, according to our analysis, renovations might cost more or take longer than planned. The amount we are willing to lend may also come down if the property may not be worth enough at exit to comfortably repay the loan if its value falls.
How long is a commercial bridge loan?
Commercial property bridge loans are short. They generally run from about 6 to 36 months. Our standard short-term loans here at Private Capital Investors usually have terms of 1 to 3 years.
The exact term depends on how long you expect to need before refinancing or selling the property.
Many investors who are new to commercial properties assume that it’s best to take the longest term available. This is not always the cheapest route. What matters is having enough time to complete the business plan and execute the exit.
Do you expect renovations to take 12 months and lease-up another six?
In this case, a 12-month loan might be too short. You could be forced to refinance prematurely, before the property has reached the performance assumed in your projections.
Some bridge loans include extension options, but extensions may come with additional fees or a higher interest rate.
Are commercial bridge loans interest-only?
Many are. When you take out an interest-only bridge loan, all of your monthly payments go toward interest. You’re not reducing the principal balance. So if you borrowed $5 million, you will still owe that $5 million when the loan reaches maturity.
This interest-only structure keeps your monthly payments lower, so you can put more of your capital into renovations or work on increasing occupancy. However, you need to be ready to repay the entire outstanding principal at the end of the term, either by refinancing or selling the property.
What interest rate can you expect on a commercial bridge loan?
Our commercial bridge loan rates start at 5.99%. Of course, your quoted rate will depend on your property’s overall income profile and how strong your exit strategy is.
If you choose a floating-rate bridge loan, your interest rate may be based on SOFR plus an amount set by the lender. That added amount may be higher if you’re borrowing more against the property or its current income is weak.
Why is your exit strategy important?
Because the commercial property bridge lender needs to know where the money to repay the loan will come from.
If you plan to refinance, the lender will want to see whether the property is likely to qualify for permanent financing once the business plan is complete.
Are you buying an under-occupied apartment property and plan to renovate the units?
Then your projections need to show that higher rents and occupancy will raise the property’s NOI enough to meet a bank/permanent lender’s DSCR requirement within 18 months.
Do you plan to sell?
Then the lender will likely look at whether the expected sale value is high enough to repay the outstanding bridge balance.
What documents do bridge lenders usually require?
The exact package depends on the deal, but be ready to provide this information:
- Property address and type
- Purchase price or current value
- Requested loan amount
- Rent roll if applicable
- Income and expense summary
- Business plan
- Proof of funds for closing or reserves
- Borrower entity documents
- Guarantor information
What should you check before accepting bridge loan terms?
Focus first on whether the loan gives your business plan enough time to work.
Make sure you have enough time to finish the renovations or fill vacancies before the loan matures, and that the property will be earning enough by then to qualify for refinancing.
Remember that the advertised interest rate does not tell you the full cost of the loan. Your actual rate may be higher, and you may also have to pay origination points or extension fees.
Commercial bridge loans from Private Capital Investors
Private Capital Investors provides short-term financing secured by commercial real estate. We lend nationwide. Bring your next CRE project to us for a deal-specific review.
