The Ins and Outs of Bridge Financing for Commercial Real Estate
What a commercial bridge loan is, when owners use one, how it is priced and structured, and how to plan the exit into permanent financing or a sale.
Updated & fact-checked Figures are linked to their sources at the end of the article.
A bridge loan is short-term financing that carries a property from one stage to the next: from purchase to stabilization, from construction to a permanent mortgage, or from a maturing loan to a sale or refinance. It is priced higher than permanent debt and is meant to be repaid within a few years.
This guide is for owners and buyers of commercial property, hotels and apartment buildings who need money before a long-term lender will step in. It covers why bridge loans exist, how they are usually structured, what they cost and how to plan the exit. It is general information, not financial advice.
Why bridge loans exist
Permanent lenders want properties that are already stabilized. Fannie Mae’s standard multifamily loan, for example, requires stabilized occupancy, typically 90%, for 90 days before funding.[1] CMHC’s Apartment Construction Loan Program likewise defines stabilization as 12 consecutive months of stabilized effective gross income, and only then switches the loan to principal and interest.[2] A property that does not yet meet those tests needs a different lender in the meantime. That is the bridge lender’s business.
Typical situations:
- Buying a property that needs work: a hotel due for a renovation or brand change, or an apartment building with high vacancy or below-market rents.
- Lease-up after construction or renovation, until income is high enough for a permanent loan.
- A maturing loan that cannot yet be refinanced on permanent terms because income has dropped or the property is being repositioned.
- A quick closing, such as a purchase with a short deadline, a foreclosure or receivership sale, or a partner buy-out.
- Waiting for a sale or for proceeds from another property.
How bridge loans are usually structured
| Feature | Bridge loan | Permanent mortgage |
|---|---|---|
| Term | Short, commonly 6 months to 3 years, often with extension options | Typically 5 to 10 years or more |
| Payments | Usually interest-only | Principal and interest |
| Rate | Usually floating, over a benchmark such as CORRA, prime or SOFR | Often fixed |
| Sizing | On current value, cost of the plan, or projected value after the plan | On current, stabilized income |
| Fees | Lender fee at closing, sometimes an exit fee | Lower fees |
| Lenders | Debt funds, private lenders, some banks | Banks, insurers, agencies, CMHC-insured lenders |
| Speed | Fast | Slower; more reports and reviews |
Floating-rate bridge loans are priced as a margin over a benchmark. In Canada, that is often CORRA, which the Bank of Canada calls Canada’s risk-free rate, or a bank’s prime rate; in the U.S., it is usually SOFR, published each business day by the Federal Reserve Bank of New York.[3][4] Lenders often require the borrower to buy an interest-rate cap so that payments cannot rise without limit.
Some bridge loans fund the renovation as well as the purchase. The capital spending is held back and released in draws, like a construction loan, as work is completed and inspected.
Example. An investor buys a 60-room hotel for $6 million that needs a $1.5 million renovation. A bridge lender lends $5.25 million, funding part of the purchase at closing and holding back the renovation budget for draws. The loan is interest-only for two years with a one-year extension option. Once the renovated hotel shows a full year of improved results, the owner refinances into a permanent loan or sells. These figures are illustrative only, not a quote.
Advantages and drawbacks
Bridge loans: what you gain and what you pay
Advantages
- Fast approval and closing
- Lends on properties permanent lenders will not touch yet
- Can fund renovations and carry costs during lease-up
- Interest-only payments keep cash flow manageable during the plan
Drawbacks
- Higher interest rates and fees than permanent debt
- Floating rates expose you to rate increases
- Short term: refinancing risk if the plan is late
- Extension fees and conditions if you need more time
- Often a personal or completion guarantee
Planning the exit
A bridge loan is only as good as its exit. Before signing, work out how the loan will be repaid and test what happens if the plan runs late.
Before you take a bridge loan
Define the exit
A permanent loan, a sale, or another identified source of repayment, with a realistic date.
Size the permanent loan now
Estimate stabilized income, then apply a permanent lender’s loan-to-value and debt coverage limits at a higher rate than today’s. The answer must repay the bridge loan.
Budget the full cost
Interest for the whole term, any rate cap, lender and exit fees, extension fees and the renovation budget with a contingency.
Check the extension terms
How many extensions, at what fee, and which tests (occupancy, income, loan-to-value) you must meet to use them.
Know the guarantees
What you are personally liable for, and when. See recourse vs non-recourse loans.
Bridge loans are particularly common when a loan is maturing and the property cannot yet be refinanced on permanent terms. In the U.S., the Mortgage Bankers Association expects 30% of hotel and motel mortgage balances to mature in 2026, against 17% across all commercial property.[5] Read more in our guides to refinancing and recourse vs non-recourse loans.
Sources
- Multifamily Term Sheet: Conventional Properties — Fannie Mae, 2026. Checked 2026-10-12.
- Apartment Construction Loan Program: Standard Rental Housing — Canada Mortgage and Housing Corporation. Checked 2026-10-12.
- Canadian Overnight Repo Rate Average — Bank of Canada. Checked 2026-10-12.
- Secured Overnight Financing Rate Data — Federal Reserve Bank of New York. Checked 2026-10-12.
- 17 Percent of Commercial and Multifamily Mortgage Balances to Mature in 2026 — Mortgage Bankers Association, February 9, 2026. Checked 2026-10-12.
