What is a bridge loan?  

A bridge loan is defined as a short-term real estate loan that gives the property owner time to complete some task - such as improving the property, finding a new tenant and/or selling the property. A bridge loan is not a construction, development, blanket, residential, business or hard money loan. It is not a 2nd mortgage used to acquire other properties (i.e. residential bridge loans). The typical commercial property bridge loan has a term of six months to one year, although many commercial bridge loan lenders will grant the owner the option to extend for six months to one year for a fee of between a half-point to two points. 

Bridge loans are ideal for transactions:  

a) Whose previous financing fell through
b) Needing to close quickly
c) Soon to be sold or refinanced
d) Shy of qualifying for long term financing or e) Need additional stabilization  

Bridge loans are more expensive than permanent loans. In a market where a commercial property borrower might be able to obtain a 6% permanent loan, he might have to pay LIBOR plus 3% to 4% (8.25% to 9.99%), plus a point or two, for a bridge loan from a commercial real estate opportunity fund. Commercial property bridge loans are typically paid off when the owner places permanent financing on the property, after the improvements are completed and the new tenant(s) move into the property. Because of their short term nature, most bridge loans have no prepayment penalty.