Pros and Cons of Using Bridge Loans for Commercial Property Investment
In 2016, Olayan America Corp. was negotiating to buy the Sony Building in New York City.
The deal was time-sensitive and couldn’t wait for the drawn-out approval process of traditional banks.
To avoid losing the property, Olayan secured a short-term bridge loan from ING Capital and used the proceeds to close the transaction while waiting to secure long-term financing.
That was bridge loans at play in a high-profile acquisition.
But no matter the size of the deal, these types of short-term commercial property loans can give you access to capital while you’re waiting for traditional funding to become available — whether you’re unable to sell an existing asset or stuck in delays securing planning permissions.
These loans aren’t cheap, but they solve the immediate problem of timing. And as with any financing tool, they have their pros and cons.
Knowing when to use them can protect both your capital and your timeline.
Pros of Using Bridge Loans for Commercial Real Estate
1. You can close faster
Traditional lenders take their time. Your commercial property loan application will likely need to go through full underwriting and multiple approvals.
All those delays can cost you the deal in an auction or if the seller is looking for a quick close.
Bridge loans can cover the purchase in the meantime to keep the transaction alive.
Funds can be released in a matter of weeks instead of months, so you can act while the opportunity is still on the table.
2. Approval depends more on the property than your income
Unlike banks that will ask to see your personal financials, many bridge lenders look at the property itself.
If your plan makes sense and the numbers add up, you’ll likely get approved for a bridge loan even if your income is irregular or your credit score isn’t perfect.
3. Interest-only payments will give you some breathing room
Private commercial property loan lenders who specialize in bridge loans often structure the first few months as interest-only, which lowers your payments while you’re still stabilizing the property or lining up your exit.
4. You’re not limited by mortgage restrictions
Is the commercial property you’re eyeing missing a functioning HVAC system, or is it not up to code?
You can still get bridge financing even for CRE assets that do not yet meet occupancy standards.
Traditional lenders will usually pass on properties in that condition, but bridge financing lets you acquire the asset anyway and make the necessary improvements, and then refinance or sell once it’s brought up to spec.
5. You’re free to repay early without penalties
Most bridge lenders will not charge you a fee for repaying the loan early.
If your sale or refinance wraps up ahead of schedule, you can settle the loan and move on without incurring additional costs for closing out before the original term ends.
6. You can use it to hold land while working through zoning approvals
Is it taking you longer than expected to get development approvals for land you’re under contract to buy?
You can use a bridge loan to hold the site while you’re still waiting on permits.
7. You can get started on refurbishments sooner
If you’ve lined up a project that’s underpriced because it needs repairs or repositioning, a bridge loan gives you the funding to start work now and decide later whether you want to sell or refinance.
Cons of Using Bridge Loans for Commercial Real Estate
1. You’ll need a follow-up plan
Bridge loans aren’t permanent solutions.
Once the term ends, you’ll need to either refinance or sell, which means having to go through a second round of underwriting with a new lender and having to pay more fees.
If you don’t already have a clear exit strategy, this could become an expensive detour.
2. You won’t lock in a long-term rate
The rate you get only applies during the short bridge period.
If the broader market sees interest rate increases before you secure permanent financing, your follow-on loan — whether it’s a standard CRE mortgage or agency debt — could come with a higher rate than you expected, which means higher monthly payments and potentially thinner margins.
3. Interest and fees are higher
Bridge loan rates are higher than traditional loans, and you may also pay an origination fee up front.
Some lenders let you pay interest monthly, while others roll it up and collect it at the end.
Either way, it’s a higher-cost structure that you need to factor into your budget.
4. There’s no guarantee you’ll qualify for your next loan
Markets change. There’s no guarantee that the future sale or refinance you’re relying on will go as planned.
If the property’s value drops or if lenders suddenly become more conservative, your permanent loan might fall through.
This is a very real risk in commercial and multifamily deals where financing depends heavily on market conditions.
5. You’re personally on the hook
Bridge loans are secured against property, but they also often come with a personal guarantee.
If things don’t go according to plan and the property doesn’t cover the debt, your other assets could be at risk.
Make sure you understand exactly what’s on the line.
6. You give up some consumer protections
Many bridge loans fall outside the scope of financial regulators, which means faster approvals and fewer hoops, but also fewer safeguards.
What can you use a bridge loan for?
- Securing a property at auction with a 28-day close
- Renovating or flipping a building before resale or refinance
- Purchasing land for pre-planning
- Upgrading underperforming commercial assets
- Buying new business premises before selling the old ones
- Covering tax liabilities or equipment purchases
- Holding a site through lease-up until permanent financing is available
To get the most out of bridge loans for commercial real estate, you need to have a clear and realistic plan for getting from point A to point B.
You should already know your exit — how and when you plan to repay the loan — and only need capital to get through the interim phase.
Apply for a CRE bridge loan at Private Capital Investors
At Private Capital Investors, you can access bridge loans up to $50 million.
We fund a wide range of property types — multifamily, office, retail, urban land, hospitality, mixed-use, and more.
Our terms range from 1 to 3 years, with interest rates starting at 5.99% and loan-to-value ratios up to 85%.
We finance acquisitions with or without rehab, quick closings, land purchases, lease-up deals, and other situations where traditional financing isn’t fast or flexible enough.
Sources
- https://www.investopedia.com/terms/b/bridgeloan.asp
- https://www.limaone.com/bridge-loans-pros-and-cons/
- https://brickflow.com/brickflow-thinks/what-are-the-pros-and-cons-of-a-bridging-loan
- https://privatecapitalinvestors.com/commercial-real-estate-loan-programs/commercial-mortgage-bridge-financing/
