Bridge loans are often used in connection with commercial real estate financing, whether it be to quickly close on a property, acquire commercial real estate from foreclosure, or take advantage of a short-to-medium term opportunity and provide additional time for the customer to secure a permanent commercial mortgage loan. Bridge loans are typically repaid when the property is stabilized and in-place cash flow increases. At that point, the property is either sold or refinanced by a long-term commercial mortgage lender (CMBS, bank or life company).
Although both are used to finance commercial real estate, a bridge loan is different than a hard money loan in that bridge loans typically have medium terms (3-5 years) and are secured by higher quality properties that are already built, and therefore offer more favorable pricing. In sharp contrast, hard money loans have short terms (usually 6-12 months), are secured by lesser quality properties that are often undeveloped, and carry much higher fees and rates.
Most banks do not offer commercial real estate bridge loans because they typically do not fit the bank’s lending criteria due to the speculative nature of the property, the higher level of risk, lack of cash flow, and other factors. A bank that originates bridge loans might also have difficulty justifying its lending practices to its investors and government regulators. Accordingly, bridge loans are more likely to come from specialty finance businesses like A10 Capital that make a practice of providing bridge loans and are staffed with the expertise to get the deal done in a manner that meets the expectations and timeframes of the customer.